Supreme Court Rules: Social Security is NOT a Binding Contract
By Jonathan Bean • Wednesday January 23, 2013 7:40 PM PDT • 21 Comments
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.
Tags: Budget and Tax Policy, Constitution, Envy, History, Law, Social Security, Supreme Court 
Social Security is nothing but a tax. The money that flows out are benefits. There are no real Trust Funds. Only Government Bonds(that have to be paid off with more taxes)that were swapped out for cash years ago. All the money has been spent. The money comes in the money goes out. It is really the World’s largest chain letter. Social Security benefits can be ended by Congress at any time and there is nothing that current or future recipients can legally do about it. Almost every politician from FDR on lied or misstated the truth about Social Security. I knew these facts 35 years ago and nobody believed me,especially the people who were already receiving benefits. They had this fantasy that Social Security was some kind of Retirement Insurance set up by the Federal Government where you had your own private account. Nothing could have been further from the truth. Now,because the Federal Government is bankrupt,the government is going to go after the trillions of dollars in IRA and 401k accounts. They will do this by taking the cash out of the savings funds and swapping that cash with U.S. Treasury Bonds that pay a meager 3%. Of course the real inflation rate is closer to 10% which means people who have invested in retirement accounts for years will lose much of the purchasing power of their retirement savings. Over the last 100 years or so America has slid down the slippery slope into a collectivist society. Things like Social Security are the final results of that slide. A system of “each according to his ability and each according to his need.” The problem is that the people with the need get the fruits of the labor of those with the ability. And those with the ability get to hold the bag.
libertarian jerry | Jan 24, 2013 | Reply
The SSA is being candid in recognizing the “non-contractual” basis of the “agreement”. What no one is facilitating, is a better understanding of why what “jerry” says is true (or at least to what extent): that SS (if and as paid) is part tax and part savings. I think the Consumer Financial Protection Racket should insist that a calculation be agreed on to show the degree to which your expected benefits represent a negative return on principal (and thus a tax). As benefits become means-tested, the need to see how much you have been taxed is greater.
MG | Jan 24, 2013 | Reply
I don’t think I said the Social Security program is doomed. First, if you read the whole post in context, two sentences before it uses the word “doomed” it says, “That is the essential truth behind the politically unpopular idea that the programs must be reformed in order to save them.” The implication is that the programs are doomed in their current form, and can only survive if they are reformed. It appears to me you quoted that single word “doomed” out of context.
Randall Holcombe | Jan 24, 2013 | Reply
Dear Randall,
As for “doomed” – I’d say the sentence constructions suggest to this read that if it is “not sustainable,” reform is “unpopular” and their “current profligacy dooms them” — that combination reads like they are doomed.
There wasn’t much room there for reform (not that you advocate reform) or even the political possibility of them being “reformed.”
So, in your estimation, what will happen? Will the profligacy end? Will there be “reforms”? I’d like to know.
My guess is that the reforms will be a continuation of what we have seen elsewhere: pandering to the 47% (what used to be called “tax eaters”) and erasing or downgrading what is owed to those with above-average incomes
Jonathan Bean | Jan 24, 2013 | Reply
So does this mean that my part of donating to this non binding contract is also non binding and now I can opt out :-) Sweeeeet
BlessRHeart | Jan 24, 2013 | Reply
Excuse me, but when a deduction is MANDATED by the government, from the employee and the employer, with the understanding that at a specific date the money will be distributed back to the employee, it most certainly is a binding contract or it is a dictatorship.
Sue Christensen | Jan 24, 2013 | Reply
Sue,
Welcome to dictatorship! If it were a contract at the time we paid, then when is the time to pay back? They have already changed that after the fact. I had paid in for years before they “reformed” SSA by delaying the retirement portion until age 67, not 65.
Ditto with all those contracts in the 1930s that had to be paid back in gold-denominated dollars. The Gold Clause Cases (Supreme Court) said that FDR was OK when he reneged on gold commitments both of the government and private parties.
For a short primer on how that went down, see my earlier illustrated blog: http://blog.independent.org/2011/07/24/fdr-redux-a-cartoon-guide-to-cutting-the-national-debt-by-40-with-the-stroke-of-a-pen-part-ii/
Jonathan Bean | Jan 24, 2013 | Reply
Dictatorship? Sue, the program is, and always was, a redistrubutive tax. Playing with semantics, calling it a ‘deduction’ doesn’t alter that fact, any more than calling it ‘insurance’ did.
There was never an ‘understanding’ that the money would be ‘redistributed back to the employee’. There were semantical games to give people that impression, but anyone who thought it through would have recognized it for what it was —- a tax!
Since when has any government conceeded that taxes are refundable?
steve | Jan 25, 2013 | Reply
SocSec is a LAW, Sue; laws are amendable.
I still can’t understand how the USSC bought into the notion that the only thing needed to allow Congress to pass a law doing something that Congress is not allowed to do [i.e., there is no "Old-Age Pension clause" in
A I § 8] is to form a tax around it.
Does no one comprehend the huge potential for abuse this creates? Why, it could usher in Medicare ... and Obamacare ...
rwilymz | Jan 25, 2013 | Reply
“Social Security is nothing but a tax.”
Ah, but would that it be so simple! Social Security was also one the earliest (if not the earliest) planned WITHHOLDING tax (that method not applied to income taxes until WWII.
FDR cleverly (satanically) said
“We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect the pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my social security program.”
FDR was a _political_ genius. And so here we are with this noose around our necks.
Also it is a tax but it is also benefits – the ultimate interest-group liberalism since the act gave us not only retirement and old-age assistance but unemployment compensation, disability (expanded in a big way 1950s), AFDC for single mothers, etc.
Jonathan Bean | Jan 25, 2013 | Reply
Someone over at the Institute’s Facebook page wrote this all-too common view of the original act:
“Read the Social Security act as it was written it does guarantee paying to retirees.”
Some people are confusing the two separate programs for old agers back in the 1930s. First, there was direct cash assistance to the elderly (i.e., welfare) who had not paid anything. This was paid out immediately. This was a response to the old-age movement which swept this country and demanded approx. $30,000 tax-free for each person over age 60 (today’s dollars)!
The retirement program didn’t kick in until a half dozen years after the act was passed. People confuse the two programs. One became what is now SSI – assistance to low-income elderly and others.The other is a retirement program.
This is an important distinction. I’ll blog about the amazing old-age movement and its “pie in the sky” promises which FDR used for his own purposes. See next post from me. TTFN!
Jonathan Bean | Jan 25, 2013 | Reply
Satanically? Are you delusional?
Haha | Jan 26, 2013 | Reply
“Satanically? Are you delusional?”
Don’t be so literal. Satanic is often used loosely or in one closely related case – a Screwtape Letters-style book on Medicare as “satanic” – as satire. See http://www.amazon.com/Medicare-Meets-Mephistopheles-David-Hyman/dp/1930865929
(_Medicare Meets Mephistopheles_).
Jonathan Bean | Jan 27, 2013 | Reply
*sigh*
Everybody is entitled to an opinion, no matter if reality supports it or not.
Here is the real story, from the government:
http://www.ssa.gov/history/ssn/ssb36.html\
This is an archival or historical
document and may not reflect current
policies or procedures
That little preface came true only a year later:
In a U.S. Supreme Court case, Helvering v. Davis
(1937), the court held that Social Security is not an
insurance program, saying:
“The proceeds of both (employee and employer) taxes
are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.”
A contract signed by nobody that can be unilaterally changed by the originator is a nullity.
Joseph L. Elkhorne | Jan 28, 2013 | Reply
Suckaa! Welcome to the USSA plantation, slave!
Can you not read? The Supreme Court says SS is NOT a contract. Hello.......you pay in and you may or may not get some $$$$ down the road. It’s all dependent on the whims of politicians, 99% of whom are criminals and have their own lavish retirement plan AND SS moola on top of that.
Pretty cool, huh?
If you don’t want to pay in, do NOT offer up your Slave Surveillance Number to your employer when you sign on. Go the independent contractor route so as to keep all your money with NO deductions. Otherwise, they own your a** if you are an “employee.”
It’s a no-brainer.........
Randy Ice | Jan 28, 2013 | Reply
To All: ...especially Sue, above...! FYI: Social Security ’taxes’ (and ’Payroll taxes’) are NOT Mandatory, they are applicable* to those who (want to) volunteer to pay them, ONLY...! Just like those Illustrations given above, it’s just another (e.g.; a lie!) ’Illusion’ that it’s Mandatory, etc... I’ve literally quit paying into these ’Social programs,’ as I’ve decided NOT to volunteer those Earnings (my own private property that I’ve worked for, no one else!) to them anymore, as I need to support myself and my family FIRST, etc... The same goes for the alleged state and federal ’income taxes,’ they are also just another ’Illusion,’ (e.g.; a lie!) as it’s (just) an ’Excise tax’ based entirely upon a privileged activity – working* directly with / for the U.S. Government, etc...!!! Wakey, wakey America...
Joseph - JBM | Jan 28, 2013 | Reply
[The term] Social contract is currently fashionable in the ebb and flow of on-line political debate. This is a contract I never signed, that I’ve never seen, that has no terms, that is binding upon me but not upon the other party, that can be dispensed with at will by the government but must submitted to by me upon pain of incarceration, whose terms may change on-the-fly or even retroactively, from which there is no escape clause, which is binding in perpetuity, which binds my ancestors and descendants, which requires fealty but guarantees no consideration.
–ERNEST HANCOCK
Henry Bowman | Jan 28, 2013 | Reply
Simple take the above case and sight. Show it to your boss deduct 7-8% of your money set that aside... look at 100k a yr...7 percent if u started buying gold in 1999 you have about 175k+ in ur ira...the whole SYSTEM is a fraud...get over it....play the game and score the points using fiat money...ya see it an;t level and will NEVER be....congress just voted they dont have to pay back student loans...or get a do nothing GOV job...of 200k were they pay additional 30-40k tax free and ur saposed too pay taxes with that but most Obama men just pocket the money and go to work for financial section...another do nothing..org.
Or join the Federal reserve most american s think it part of the gov...it ant....Ron paul says audit the FED the Fed charter approved by congress says NO outside parties.... so we just talk talk ..im putting another room on my cave...good luck american u been asleep at the wheel to long...like the Valdes? still hsnot paid...or ruby ridge...as of 2007 not paid either...oh boy good night CHET..
william bigfootsq | Jan 29, 2013 | Reply
Case Name: FLEMMING V. NESTOR 363 U.S. 603 1(1960) vv. In a U.S. Supreme Court case, Helvering v. Davis
(1937), the court held that Social Security is not an
insurance program, saying:
“The proceeds of both (employee and employer) taxes
are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.”
A contract signed by nobody that can be unilaterally changed by the originator is a nullity.
I’m not a legal scholar by any means, but something between these two cases smells fishy.
First thing,the courts don’t address the more intricate details which were most important issues of all,especially with the lower courts decision to which the SC affirmed in Flemming v. Nestor, that being nationality or situs (status}, they simply state he (Nestor) was a Bulgarian who immigrated in 1913.
Nestor had immigrated to America so he thought. The INS cannot give nationality, it can only give status as a U.S.(C)citizenship)what the U.S. giveth the U.S taketh away, at THEIR whim whenever deemable. As we know U.S.(C)citizens are afforded privileges not Rights ,so Nestor had no standing what so ever to demand benefits under a supposed contract.As stated in the Helvering case (A contract signed by nobody that can be unilaterally changed by the originator is a nullity). That is because even for You who think you are or act a U.S (C)citizen are not under a contract,signing a SS card cannot meet the qualifications of a contract to make it binding, there are (7) qualifications not four as most patriots are taught to a contract,w hen signing or acquiring a SS card you are entering into an agreement which is more encompassing and broader than a contract,and requires none of the stipulations for a valid binding contract. What are you agreeing too? You are agreeing to give up your god given unalienable right (Constitutional protections) not rights, to live under the guise of democracy and not within the protections of a Republican form of government,hence you only have privileges, still want your privileges?
Do you congress is the beneficiary of SS,all those week kneed spineless pants wetters,and do you know who owns the SS administration,can you say crown for me.
Conclusion: Get out now,lets all of us you and I become the real united states and take back America one national at a time.
P.S. The bicameral mind is a terrible thing to endure.
peace
paul | Feb 3, 2013 | Reply
Also we have been under Martial Law since about 1861. Lincoln couldn’t conduct business since the Southern Union states pulled out of congress. NO QUOREM to conduct a meeting, in Washington City. Later D.C.(District of Columbia) probably a martial law district. This is probably carried out by the Corporate Acts of 1871. The re-constrution of both the South and the North.
dave | Mar 1, 2013 | Reply