Cato’s Conundrum

by Greg Davis

A recent fund-raising letter from the Cato Institute touts a quote from the Washington Post, which says that Cato is, “respected for not compromising its core beliefs even when they get in the way of practical politics.”  If this statement is true then Cato certainly has some explaining to do regarding its support for the privatization of Social Security. 

The letter outlines the driving principle at Cato, a “constitutional order of limited government.”  The basic idea of which was for America to have a strictly limited federal government with stronger state governments who compete with one another to be the freest from onerous taxation and regulation.  Then it is claimed that FDR’s court packing scheme finally forced the Supreme Court to give in to FDR’s “extraconstitutional initiatives” thus upsetting the system established by the founders.  Finally there is a brief explanation of how the General Welfare Clause of the Constitution has been misinterpreted as justifying a whole host of legislative initiatives since FDR’s court packing scheme. 

Generally the above analysis is acceptable.  This leads us to Cato’s drive to privatize Social Security.  The Supreme Court has ruled at least twice that Social Security is merely a tax and that benefits are paid at the discretion of Congress with those who pay the taxes having no enforceable property right to benefits (see Helvering v. Davis, 1937 or Fleming v. Nestor, 1960).  The tax portion of Social Security has been justified by the Court as being part of the federal government’s general taxing power.  The benefits portion of Social Security has been justified as being conducive to the general welfare. 

The problem Cato faces is that they correctly deride the type of flawed interpretation of the General Welfare Clause that turns individual subsides like Social Security payments into exercises of the power of Congress to provide for the general welfare, yet their privatization plan goes beyond the current system to turn Social Security taxes into the private property of the payer even to the point where the accrued value of the individual account can be passed on to heirs!  For this type of plan to pass constitutional muster would require an expansive interpretation of the General Welfare Clause that would have made FDR blush (assuming he was capable of blushing).  If one of the other enumerated powers of Congress would cover this scheme, I’d like to see it. 

So what we’re left with is the noble Cato Institute, uncompromising champion of limited constitutional government, proposing that the federal government run a massive pension system that is nowhere authorized by the Constitution for the sake of political expediency when the principled thing to do would be to figure out how to eliminate the entire system while not harming current and near-future retirees.