Wednesday, May 28, 2014

Do We Own Our Social Security Accounts?, II: The Situation


While we appreciate the sentiments expressed by the Lady in Montana given in the previous posting, and agree that, under the influence of Keynesian economics, politicians have been bleeding the productive private sector dry in favor of unproductive government spending and private sector speculation and gambling, the simple fact is that we do not own the money that we have paid into “our” Social Security accounts.  Social Security was designed as a redistribution program in which those paying the tax (and note that it is a tax, not a contribution) support those receiving benefits.

If you read the original 1935 government handout explaining the system carefully, you will see that it never actually says that participants are paying into a bank account of some kind, where the money collects interest.  What it does say is that the government collects the tax (which will “never” be more than 3% of $3,000 from either your or your employer), credits it to an account in your name (which doesn’t actually mean anything), and then borrows the money, replacing it with government interest-bearing bonds.

In order to pay benefits out of this trust fund, the government must either float new debt to retire the old debt, or collect additional taxes.  Thus, for every dollar paid out of the Social Security trust fund, the government must collect more than two dollars in taxes.  The additional taxes are to meet the administrative costs of running the system.

Further, the Social Security Act of 1935 contains a provision in which Congress reserves the right to adjust benefits at any time.  This necessarily implies that no, you do not own that money.  If you did, Congress could not “adjust benefits,” since the only way to pay less would be to take “your” money away from you, and the only way to pay more would be to take “others’” money and give it to you.  In either case, that’s not ownership, that’s redistribution.

The fact that no one owns what is credited to his or her Social Security accounts was demonstrated in 1960 in the case of Flemming v. Nestor (363 U.S. 603), argued before the U.S. Supreme Court.  Ephram Nestor, an alien, was deported for being a communist after paying into Social Security for many years.  He was denied benefits.  He sued on the grounds that he had made contributions into the system, and that the money and the earnings thereon were his private property.  (We won’t address the irony of a communist who presumably advocates the abolition of private property making a claim based on the sanctity of private property.)

The Court explained that, consistent with the Social Security Act of 1935, Nestor had paid taxes, not made contributions, and he did not have a property right in the amounts credited to the accounts established in his name.  That being the case, Congress could take away benefits for any reasonable cause (e.g., being an undesirable alien engaged in un- or anti-American activities), without regard to the takings clause of the Fifth Amendment.

The dissenting justices based their opinions on 1) the assumption that paying taxes establishes a property right by citizens in government.  This was found to be without merit.  Citizens do not “own” government in the same sense they own land or chattels, nor is the State the ultimate owner of everything, whether on behalf of the citizens or in its own right.

2) Nestor was being persecuted for being a communist.  This had some merit, but the fact remained that Nestor had, in fact, broken the law and been deported, and the denial of benefits was therefore not unreasonable.

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