Wednesday, July 29, 2015

Let’s Talk About . . . Retirement, II: Social Security


“It’s my money!  I paid it in!  I own it!”  That is the response almost any time you bring up the subject of Social Security and the projected deficit — now amounting to around $41 trillion and change (down from a few years ago when they changed accounting assumptions — don’t you wish you could reduce debt the same way?), according to the “real time” National Debt Clock at http://usdebtclock.org/.  When you add in the total projections for unfunded federal government liabilities, you’re starting to push up against $100 trillion.

It's not your money once the tax collector has it.
It’s time for a few facts of life about Social Security.  Number One (and this is not going to make you happy) is . . . it’s not your money.  Yes, you paid it in, but that was a tax, not what the DOL and the benefits lawyers call a “contribution.”  You don’t continue to own the taxes you pay to the government.  You granted them to the government, and it’s non-refundable.

There was even a Supreme Court case about this.  Remember the Supreme Court that makes all our laws?  Yes, that’s what Congress is supposed to do, but let’s get real.  The Supreme Court can get away with anything, even abolishing the Constitution, just by declaring the Constitution unconstitutional.

FDR signing the Social Security Act of 1935
The case was Flemming v. Nestor (363 U.S. 603) back in 1960.  Ephram (correct spelling) Nestor was a resident alien who was a communist and who paid into Social Security for 19 years.  He was deported and denied Social Security benefits under the power of Congress to adjust or deny benefits for any reasonable cause.

Nestor sued on the grounds that payment of the Social Security tax created a contract and he therefore had a private property stake in the benefits accumulated in his account.  We’ll ignore, as the Court did, the irony of a communist who seeks the abolition of private property suing the government on the grounds that his private property rights were violated.

The Court ruled that neither Nestor nor anyone else has a property right in what they pay into their Social Security accounts.  It’s a tax, not a contribution. . . .

The bottom line?  Congress can reduce or eliminate Social Security benefits for anyone, anytime, as long as they have a good reason, without violating anyone’s rights.  News flash: not having the money is a real good reason for not paying or at least reducing benefits.  The government is not legally obligated to pay you one cent if it can come up with a good reason not to pay.

The U.S. government promises to give you a piece of paper just like this in exchange for this.
Here’s another news flash: There is no money in the Social Security trust fund.  You know what’s there?  A gigantic mountain of I.O.U.s called “government bonds.”

That’s right.  All the money the government collects for Social Security benefits that isn’t paid out in the current period is taken out of the Social Security pocket and put into the general revenues pocket, then taken out and spent.  It’s replaced with pieces of paper that say the government owes itself tons of money.

In order for the Social Security Administration to cash in those bonds, the government has to collect more taxes, borrow the money, or print the money.  Then it has to pay that back.  Translation: for every dollar the government pays out from the Social Security Trust Fund, it has to collect more than two dollars in taxes!  That’s right — running the system and collecting taxes costs money, and thus to redeem its own IOU and pay out a dollar, the government has to collect more than one dollar.  You don’t work for free, why should government workers?

The bottom line?  Social Security isn’t going bankrupt.  It’s been technically bankrupt since it was established.  It’s just that the government keeps bailing it out.  With “your” money?  No.  With tax money that now belongs to the government, not to you.  You just end up paying for it.  Twice.

Sleepless yet?  Have no fear.  Tomorrow we take a look at “the Jobs Market.”

#30#

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