Supreme Court Rules: Social Security is NOT a Binding Contract



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This post was prompted by all-too-common opinions expressed in Randall Holcombe’s recent “Federal Government Debt Undermines the Programs It Finances” blog. The respondents passionately insist that Social Security is a contract, whatever you do to the budget, do not touch Social Security. “I paid in and it is a contract. They owe me.”

The Supreme Court settled this issue in 1960! Even more to the point, the Social Security Administration mocks those who think it is a binding contract. On the SSA’s own web site, it states:

“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.”

The SSA cites the Flemming v. Nestor (1960) decision and even posts it in its entirety. The Social Security Administration defends the inevitable default on payments (for some Americans, not all) by summing up that case:

“In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right.”

I don’t agree with R. Holcombe that the program is “doomed.” The program will be means-tested (prediction) for “those who do not need it,” including those who saved, had long work histories, and generally did all the old-school things that our destroy-the-wealth State frowns upon. In fact, if Social Security were a binding contract, what is the stated rate of return? There is none! But anyone who has studied the history of Social Security knows that past and present formulas give a much higher payout to those with lower incomes and spotty work records. If you pay in the maximum amount your entire career, then you will get the lowest rate of return. This is all done behind the curtain of Oz.

One last Reality Check: You aren’t entitled to Social Security at age 65. Starting October 1, 2027 (the day before I turn 65), the retirement age rises to 67. It will go even higher for “those who do not need (much) of it.”

Mark my words. The slicing of Social Security will retain the benefits for the less productive wage earners and simply skew the formula ever more against those who work and pay the maximum amount.

Postscript: The person who appealed to the Supreme Court for his right to benefits was a Communist. Further proof that if those you dislike lose their rights, we all lose. There is a certain irony, though, with a Communist claiming a contractual property right to Social Security. History is funny that way.

And remember: we aren’t talking about the Super Rich or even the 1%. If you are working upper middle class, you pay on wages (not investment income) up to $110,000. But don’t expect much if anything in return. You are not entitled. The Court has spoken.

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