- Force every working person, regardless of their circumstances, to pay a fixed percentage of their income to the government as a payroll deduction, up to some maximum amount of income.
- The government would then pay part of the amount collected to current retirees over a certain age.
- Any amount that is not paid to retirees is to be spent immediately by the government, with an 'IOU' recorded for how much the government owes the plan, and so will have to collect again with taxes in order to help fund future payments to new retirees.
- The 'IOUs' will earn interest, and those interest payments will also be made by working people, via another payroll deduction.
- Explicitly state that the proceeds collected from the payroll deduction are paid into the treasury, and are not earmarked in any way, and that government is at liberty to spend them as it will.
- Explicitly state that no person has a right to any particular benefit from the plan, regardless of how much they may have contributed in payroll deductions.
Most people probably wouldn't support such a scheme, even if not for the obvious and blatant injustice of denying participants a specific right to a benefit after having paid into the plan, but also because of the problem of allowing government to simply spend any surplus on whatever it wanted.
But while most people would recognize some similarity between the description above and the current Social Security system in the U.S. (OASDI), the vast majority would probably not know that every bullet point listed above accurately describes Social Security.
It's exceedingly rare to hear anyone mention (or write about) anything but the first two bullet points, that Social Security uses a payroll deduction to fund people's retirement.
Not only are the last four bullet points rarely discussed, people are encouraged to believe exactly the opposite -- that because they've made payments to Social Security via the payroll deduction, they own an account in a 'trust fund', that holds an income producing asset.
But the Supreme Court of the United States has clearly ruled this is NOT the case.
In 1937 the Supreme Court of the United States ruled in Helvering v. Davis that the taxes paid into Social Security are not earmarked in any way, and that Congress is at liberty to spend them as it will --
http://www.law.cornell.edu/socsec/course/readings/301us619.htm
https://casetext.com/case/helvering-v-davis#.U6M_0fldXDs
The argument for petitioners is that the tax moneys are not earmarked, and that Congress is at liberty to spend them as it will.
...
Title VIII, as we have said, lays two different types of tax, an "income tax on employees," and "an excise tax on employers." The income tax on employees is measured by wages paid during the calendar year. § 801. The excise tax on the employer is to be paid "with respect to having individuals in his employ," and, like the tax on employees, is measured by wages.
...
The proceeds of both taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way. § 807(a). There are penalties for non-payment.
In 1960 the Supreme Court of the United States ruled in Flemming v. Nestor that an individual has no right to benefit payments, regardless of having paid into the plan --
http://www.law.cornell.edu/supremecourt/text/363/603
https://casetext.com/case/flemming-v-nestor#.U6NAGfldXDs
To engraft upon the Social Security system a concept of "accrued property rights" would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands.
...
We must conclude that a person covered by the Act has not such a right in benefit payments as would make every defeasance of "accrued" interests violative of the Due Process Clause of the Fifth Amendment.
Even the Social Security Administration has a page informing people about the Flemming v. Nestor ruling, and warning that there's no promise of any benefit --
http://www.ssa.gov/history/nestor.html
https://archive.is/kWlJ
Background to the Case:
The fact that workers contribute to the Social Security program's funding through a dedicated payroll tax establishes a unique connection between those tax payments and future benefits. More so than general federal income taxes can be said to establish "rights" to certain government services. This is often expressed in the idea that Social Security benefits are "an earned right." This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility--and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.
There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit. Under this reasoning, benefits under Social Security could probably only be increased, never decreased, if the Act could be amended at all. Congress clearly had no such limitation in mind when crafting the law. Section 1104 of the 1935 Act, entitled "RESERVATION OF POWER," specifically said: "The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress." Even so, some have thought that this reservation was in some way unconstitutional. This is the issue finally settled by Flemming v. Nestor.
In this 1960 Supreme Court decision Nestor's denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits. Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor's benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right.
And yet almost without exception, Americans view Social Security as a bedrock social program that should not be touched.
'Social Security' is misnamed -- it should be called 'Government Security', because it is clearly designed to give government power over people, rather than the reverse.
See this commentary written back in 1998, by Michael Tanner of the Cato Institute, where he points out that only private accounts can solve this problem --
http://www.cato.org/publications/commentary/is-there-right-social-security
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