Disinformation Versus Social Security Reform

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other day I received an unsolicited mailing from a group called
the Council for Government Reform, which revealed the yawning gap
between the general understanding of Social Security, especially
among the elderly and their advocates, and the reality.

began: "(Washington D.C.) Senior Alert: Congress CONTINUES
the Raid on the Trust Fund. . . . Trust Fund STILL
headed to bankruptcy." Then it asked me to sign a petition
demanding a "Senior Bill of Rights" such as fair annual
Social Security COLAs, assurance that Social Security and Medicare
benefits would be guaranteed from cuts, and exemption of these programs
from means testing. "The Social Security Trust Fund is fast
headed for bankruptcy as a result of massive government mismanagementu2014and
despite its promises, Congress is NOT paying back the money owed
to the Social Security Trust Fund." The letter added that "Social
Security is not the problem: Congress
is!" "Fact is, your Social Security benefits have BEEN
EARNED and PAID FOR. They ARE NOT THE SAME as other government expenses
and they should {never} be cut! Your petition . . . reminds [Congress]
you {paid for your benefits} with special taxes withheld from your
paychecks . . . "

mailing demanded not only the foregoing guarantees, but that "The
Government should STOP BORROWING from the Social Security Trust
Fund to pay for wasteful pork barrel projects."

signed petition, the author added, would have "tremendous impact,"
because he would be urging all Senators and Representatives to support
the "Social Security Benefits Guarantee Bill" (H.R. 3135/S.
1558), which would give seniors "a legal guarantee that their
Social Security benefits can never be taken away, a guarantee Seniors
do not currently have."

brief survey accompanied, asking if I agreed that "Monies paid
into the Social Security Trust Fund are for payment of future Social
Security checks and NOT to fund current federal spending" and
"Do you agree Congress should EXCLUDE Social Security from
any CUTS since Social Security is earned and paid for with special
payroll taxes, unlike welfare, farm subsidies, and other so-called
entitlements?" (original emphasis throughout) Finally, a request
to – surprise, surprise – send them money.

sort out the truths, half-truths, and flat-out falsehoods here.

seniors paid payroll taxes for Social Security. But if they believe
that their benefits are "earned and paid for," that is
what Franklin Roosevelt and the other architects of Social Security
wanted them to believe. To a complaint that the Social Security
payroll tax was regressive, hitting the working poor the hardest,
Roosevelt replied, "I guess you're right on the economics,
but those payroll 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. . . With those taxes in there,
no damn politician can ever scrap my Social Security program."
So the Social Security tax wasn't about financing the program. It
was about creating a sense of entitlement, a belief that benefits
are an "earned right." But as we shall see, the "earned
right" is a fiction.

for the "Social Security Trust Fund," this is simply an
account at the U.S. Treasury. The original Social Security Act of
1935 created an Old-Age Reserve Account at the Treasury, to which
monies would be appropriated by Congress for paying benefits, with
any money not needed for benefits invested in interest-bearing Treasury
debt. Social Security tax collection began in 1937; benefit payment
wouldn't start until 1942. Therefore, critics charged, the government
was spending the Social Security tax money on general expenses and
issuing itself an IOU. Some critics even accused Congress of embezzling
the money. As part of the 1939 Social Security amendments, the Reserve
Account was renamed the "Old-Age and Survivors Insurance Trust
Fund." The reason for this, Social Security Board chairman
Arthur Altmeyer told the Senate Finance Committee, was "to
allay the unwarranted fears of some people who thought Uncle Sam
was embezzling the money." Adoption of the term "trust
fund," then, was simply a public relations move.

Congress looting or mismanaging the Trust Fund? Nonsense. Social
Security taxes are collected by the Treasury; it credits the Trust
Fund with an equivalent amount of unmarketable Treasury debt; when
benefits are paid, the Treasury writes the checks and debits the
Trust Fund for an equivalent sum; anything left over is the Social
Security surplus. Social Security is off-budget, so when the budget
runs a deficit, yes, the Social Security surplus helps cover it.
But so what? Since the Trust Fund can hold neither cash balances
nor private securities, it has nowhere else to go but into government
debt. This isn't looting or mismanagement; it's the law. It's the
way the Trust Fund has operated all along. And since the Fund never
holds cash, Congress is not "borrowing" anything.

mailing is right about one thing: there is no legal guarantee that
seniors will get their benefits. Section 1104 of the original Social
Security Act reads as follows: "The right to alter, amend,
or repeal any provision of this Act is hereby reserved to the Congress."
There is nothing sinister about this. Congress routinely reserves
the right to amend legislation as circumstances affecting it change.

Congress has usually increased benefits, it has also occasionally
cut them, and Section 1104 gives it all the authority it needs.
The original Act contained a money-back guarantee; in no case would
the worker (or his estate) receive less than he had paid in in taxes.
Just four years later, the guarantee was removed in order to offset
the cost of adding survivors' benefits. Of course, this made nonsense
of the "earned right," but Social Security's publications,
naturally, never pointed that out.

1954, other amendments authorized, among other things, benefit termination
for anyone deported for subversive activity. Two years later, one
Ephram Nestor was deported for being a Communist in the Thirties.
He had applied for and begun receiving his benefits the year before;
after his deportation, his benefits were cut off. He sued, citing
statements by politicians that his Social Security benefits were
an "earned right" which he had paid for. In Flemming v.
Nestor (1960), the Supreme Court ruled that there was no accrued
property right to benefits, and that a taxpayer's situation regarding
Social Security "cannot be soundly analogized to that of the
holder of an annuity, whose right to benefits is bottomed on his
contractual premium payments." So much for benefits being "earned
and paid for."

after year, millions of impressionable senior citizens who don't
know any better receive manipulative, misleading mailings like this
one. Is it any wonder they're convinced that they have a right to
their benefits, that Social Security faces no problems caused by
an aging population, and that if it weren't for those blankety-blank-blanks
in Congress rifling that trust fund, everything would be just fine?
Is it any wonder they're dead set against overhauling Social Security,
and let Congress know it, so that reform is politically next to

of interesting plans are circulating for reforming Social Security.
But until Americans' minds are cleared of the disinformation illustrated
by this mailing, Social Security reform isn't going to go anywhere.

26, 2002

Attarian (send him mail)
is a writer in Ann Arbor, Michigan, with a Ph.D. in economics. His
book Social
Security: False Consciousness and Crisis
, which treats the
myths and realities of Social Security in detail, has just been
published by Transaction Publishers.

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