By Dr. Harold Pease
Governor Rick Perry is accused of referring to Social Security as a Ponzi scheme. To consider the authenticity of this claim we must return to the deceptive strategy of its origin.
Since Social Security was not on the list of the qualifiers of general welfare—Article I, Section 8 of the Constitution—government had no power to forcibly extract a portion of a man’s wage and force his employer to match this fund—not even close. So they used the power to tax to justify this action. But Congress had no power to tax for powers that it did not have. Never the less the government took over the responsibility for everyone’s retirement and the people lost the right to their own money—the portion that was forcibly extracted as a condition of employment. Moreover, since the federal government would now do this for them, they had no incentive to do it for themselves.
At the time the Supreme Court had ruled much of the New Deal legislation unconstitutional and Social Security probably would have met the same end had Franklin D. Roosevelt’s new Court Packing bill not been threatening the independence of the Supreme Court. They let this one slide. To do so they had to agree to place the new tax monies in the “Treasury like internal-revenue taxes generally, and … not earmarked in any way” (301 U.S. 619, 1937). They should have gone to Article V, adding an amendment to the Constitution empowering the federal government to do so, but they were uncertain that it would pass so enacted an end run around the Constitution instead.
The money taken under the guise of taxes was not set aside for the giver’s future at all, as most believed, but just added to the general fund and spent. If private firms did the same thing, the federal government would call it a Ponzi scheme and perpetrators would serve time. When taxpayers do retire, they will have to depend upon the resources of future generations to cover what was promised. The system could never end without injustice to the “old” people. Each generation rightfully came to believe in their entitlement, having allowed FDR to spend their contributions on the previous generation.
Payroll taxes and benefits payments began in 1937. Ida May Fuller, a legal secretary, paid a total of $24.75 into the system between 1937-1939. Her first monthly check issued Jan. 1940, was $2.00 short of this. “After her second check, Fuller already had received more than she contributed over the three-year period. She lived to be 100 and collected a total of $22,888.92 (Research Note #3: Details of Ida May Fuller’s Payroll Tax Contributions, Social Security Administration).” How can this not be a Ponzi scheme?
Those receiving social security in 1935, never having paid a cent into the program, were grateful, of course, for the generosity of the nation and became beholding to the party in charge of the handouts. This insured the democrats’ continuance in office for the next 17 years. Prosperity returned in the fifties and sixties, and a challenge to the now established and popular program was unthinkable. People saw Roosevelt as having saved the country. Only now, younger historians, not favorably conditioned to a worshipful response to Roosevelt, recognize and document that it was not the New Deal but World War II that pulled us out of the 21-year long Great Depression.
Over time more groups that paid nothing or very little into the fund have received benefits: spouses, widows, children and the disabled—even illegals. I have a friend who brought his mother to America and she received benefits until her death. Government figures estimated in 2010 that 54 million were receiving Social Security benefits. Without significant changes the program will crash by 2036 say the Social Security Board of Trustees in their 2011 Annual Report.
We agree that somebody does owe our elders the total of what they paid into the program, but it is not the new generation. They did nothing wrong. Why should they pick up the tab for commitments made before their birth? How can government take their money, spend it on others, look them in the eye, and tell them that this isn’t a Ponzi scheme? They are its biggest victims.
Dr. Harold Pease is an expert on the United States Constitution. He has dedicated his career to studying the writings of the Founding Fathers and applying that knowledge to current events. He has taught history and political science from this perspective for over 25 years at Taft College. To read more of his weekly articles, please visit www.LibertyUnderFire.org.