A Blog of the Global Justice Movement

Monday, January 21, 2013

Who Owns Social Security?


Short answer?  You don’t.  Neither do I.  The fact is that the money you and your employer pay into Social Security is a tax to fund a government benefit program, not payments you make to some kind of personal savings plan or an insurance scheme.


Face facts.  Even if the government didn’t “borrow” the money immediately and replace it with government bonds, but invested it in a sound, diversified portfolio of private sector blue chip debt and equity, you wouldn’t have any more or less than you do now.  The government might be better off financially, and better able to meet all the promises it’s made so lavishly, but not you.

The simple fact remains that you own neither the money you pay into Social Security, nor the earnings on that money.  If you read the 1935 Social Security Act and the handout from that year carefully, nowhere does it say you actually own anything.

Instead, Congress reserved the right to adjust benefits at any time for any reason as long as due process is followed.  Consequently, denial or reduction of benefits does not fall under the “takings” clause of the 5th Amendment to the U.S. Constitution.  This was highlighted in Flemming v. Nestor (1960), a Supreme Court case.

Ephram Nestor, a communist, was deported and denied his Social Security benefits.  He sued on the grounds that he had paid in to the system for 19 years.  He argued that a contract therefore existed between him and the U.S. government, granting him a private property right in what he had paid in and the earnings thereon.

Ignoring the irony of an avowed communist suing on the grounds of private property (“The theory of the communists can be summed up in the single sentence: the abolition of private property.” Karl Marx, The Communist Manifesto, 1848.), the Supreme Court ruled that no contract existed, and thus Nestor had no property right in what he had paid into Social Security.

Of course, the opinion in Flemming v. Nestor begged the question: How can you have a property right in something that doesn’t even exist?  There are no assets in Social Security.  It’s all government debt.  The fact is that the federal government “borrows” the money and replaces it with its own securities of increasingly dubious value.

It becomes increasingly evident that the system will not be able to meet all of the promises the politicians have made.  Not only are there no assets in Social Security — you can’t call it an asset when you borrow from yourself — the “unfunded” projected liability for Social Security (meaning the amount by which projected debt exceeds actual debt) is more than $16 trillion, according to the National Debt Clock, accessed January 16, 2013.

And that’s just Social Security.  When we add the “unfunded” liability for prescription drugs (more than $21 trillion) and the “unfunded” liability for Medicare (nearly $85 trillion), we get a total “unfunded” liability for just those three programs of more than $122 trillion.  That works out to a little (if almost $90 thousand can be described as “little”) over $1 million per taxpayer.  It comes to a bit more when you add back the so-called “assets” (actually liabilities) — government bonds — that allegedly “funded” part of the liability, for a total of somewhere in the rather exclusive neighborhood of around $125 trillion.

That’s $125,000,000,000,000.00, if you like to count zeros.

The basic problem here is twofold.  1) Social Security is not an investment, savings, insurance or pension plan.  It is a welfare program funded with its own separate tax.  The goal is redistribution, not saving.  2) Politicians set the level of benefits without reference to the revenue the tax base might be able to generate to support it.  Benefits are determined by what people want, unrestrained by what they might be able to afford.

As a sidebar to 2), politicians’ promises are almost always a triumph of optimism over experience.  “Solutions” are proposed not to solve the problem, but to buy time in the hope that somebody else will solve the problem.  It’s like the condemned man brought before the Sultan for sentencing who, as he was being dragged off to execution, declared in desperation that if he was spared, he could teach the Sultan’s horse to sing.

He was given a year to make good, and went every day to give the horse singing lessons.  When asked why he was wasting his time, the man replied that he had bought himself time — and anything could happen in a year.  “The Sultan might die.  The horse might die.  I might die.  Or — who knows? — the horse might learn to sing.”

It might, but don’t count on it.

Within the current economic paradigm, the only solution appears to be to near-total repudiation of the obligation.  Face facts: given the continual deficits the federal government runs to keep abreast of current spending, there is no realistic way it’s going to be able to meet a liability that is more than 800% 2012 estimated GDP of a little over $15 trillion.

In other words, devoting every cent — every single cent — that the U.S. produces every year for almost a decade would not be enough to fund the promises the politicians have made regarding Social Security, the prescription drug program, and Medicare.  Raising the rates won’t do it — 100% taxes are rarely, if ever, feasible.  Delaying benefits won’t do it.  Cutting spending on other programs won’t do it — the government simply can’t collect enough money to solve the problem in conventional fashion, meaning within the standard Keynesian-Monetarist/Chicago- Austrian past savings framework.

The real solution to this situation is not to demand more and more benefits from the State as a right, but to demand that the government start protecting and maintaining the rights we actually have to life, liberty, and property.  This can be done by enacting a Capital Homestead Act at the earliest possible date.  Only implementing an aggressive program of expanded capital ownership for every single American as soon as possible and making Social Security, the prescription drug program, and Medicare means based is it possible to have a realistic hope that we can not only salvage something from the wreckage, but actually prosper.

Or we could all start giving singing lessons to horses.

The choice is ours.

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