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Flaws of Social Security


Here is an essay I recently wrote for one of my classes regarding Social Security.  The majority of my research and sources was through the book “The Roots of the Social Security Myth” which can be found here.

Social Securirity will likely be insolvent in the next couple of decades if it remains as is and some have suggested allowing individuals to invest some or all of their payroll taxes into private investment accounts or put another way, to stop coercing individuals to pay into a government run programs that uses the revenues collected from “new investors” to pay the benefits of “old investors”, a ponzi scheme of sorts. Social Security is an example of one of the many ways the government expanded its powers and intrusive nature after the great depression. It is also an example of government “double-speak” as it was sold to the public as one thing and actually legislated as another. The two contradicting narratives still continue today as most of the public tend to view social security the way its proponents want them to, as an inherent right earned through investment of their money that individuals can lay claim to in their retirement years. The reality of social security is starkly different and as long as we are operating under that fallacy no reform will be effective. The real answer is to give responsibility and their own money back to the individual and let them do as they wish.

The common view of social security is that is a type of insurance, where people pay in a certain amount and then receive their investment returned with interest when they retire. This is how it was sold to the public and we bought it. However, Roosevelt himself said the following about the payroll taxes and the motivations behind this public marketing scheme:

…those taxes were never a problem of economics.
They were politics all the way through.
We put those payroll contributions there so
as to give the contributors a legal, moral, and
political right to collect their pensions and
their unemployment benefits. With those taxes
in there, no damn politician can ever scrap my
Social Security program. (1)

However, the “legal, moral, and political right” were only marketing and not fact. This was made clear by Assistant Attorney General Robert Jackson arguing before the court in 1937:

…these benefits are in the nature of pensions or
gratuities. There is no contract created by
which any person becomes entitled as a matter
of right to sue the United States or to maintain
a claim for any particular sum of money. Not
only is there no contract implied but it is
expressly negated, because it is provided in
the Act, Section 1104, that it may be repealed,
altered, or amended in any of its provisions at
any time. This Court has held that a pension
granted by the Government is a matter of
bounty, that the pensioner has no legal right to
his pension, and that they may be given, withheld,
distributed, or recalled at the discretion
of Congress. (2)

The practical implications were also expressed in this letter from an individual who lost his social security when Congress changed the law to deny benefits to those who were self-employed making over a certain amoung:

My position is that Congress has violated the
sanctity of a contract, to which I am a party, . .
. and it is a well-established principle of law
that no valid contract can be altered or
amended without the consent of both contracting
parties. . . .
Since the inception of the plan I have paid
my premiums by payroll deductions until
April 1947, when it became necessary for me
to retire . . . from that time until January 1951 I
received the benefits to which I was entitled. I
engaged in business promptly thereafter as a
self-employed person . . . as self-employed
persons were not covered by the then existing
statute. I continued to receive my social-security
benefits until the new act.
The people who get social security paid for
it. It is their money, they invested it during all
the years to the social-security fund. The social
security is not a charity. It is a form of insurance.
How has the Government the right to
take the money away or to say how much
these people can or cannot earn? (3)

Social Security is a welfare program paid for in current taxes and a redistribution of wealth. The idea that it is a retirement insurance or account in any way owned or controlled or inherently due to the financiers, taxpayers, is a facade that makes it politically untouchable. This lie is compounded by the claim that payroll taxes are kept in a trust fund earning interest to pay beneficiaries. The books are cooked. The funds are used as general funds and replaced with government bonds. In other words, the government borrows money from itself promising to pay itself back with interest. How does the government pay interest…well since all of its money comes from taxpayers, the taxpayers pay the interest and pay back the government bonds or IOUs. All smoke and mirrors in order to protect this coercive and government expanding program.

The answer is not reform but to scrap Social Security altogether. It is not the federal governments place to ensure retirement for all. The private accounts would give the government a huge stake in the markets, where there political capital as well as individuals payroll taxes will be at risk. This will encourage further regulation and manipulation of industry to produce positive results for government retirement accounts. Also, the government will have $1 trillion plus dollars to influence the markets and the people involved in the markets. People should be responsible for themselves or suffer the consequences. Charities, friends and families can help pick up the slack.

1. Arthur M. Schlesinger, Jr., The Age of Roosevelt, vol. 2,
The Coming of the New Deal (Boston: Houghton Mifflin,
1958), p. 308.

2. 73U.S., Congress, Senate, Oral Arguments in Helvering et
al. v. Davis involving the Old-Age Benefit Provisions of the Social
Security Act Before the Supreme Court of the United States, May
5, 1937, S. Doc. 71, 75th Cong., 1st sess., 1937 qtd in “The Roots of the Social Security Myth” by John Attarian

3. Analysis of the Social Security System: Hearings
before a Subcommittee of the House Committee on Ways and
Means, 83rd Cong., 1st sess., 1953 qtd in “The Roots of the Social Security Myth.”

Filed under Economics, Politics
Feb 21, 2010