1. The 1935 legislation didn't create a social security program or trust fund. .

Proposed Answer: Correct. In 1935, legislation was introduced after several years of planning by a commission. This legislation was subsequently renamed the Social Security Act. It furthered an already on-going government (state and federal) agenda of financial assistance to certain people (e.g, unemployed).
At that time, there was an account set up at the federal level for this purpose. It was called an account, and it was to hold securities and other gifts and bequests, etc. The account was for all intents and purposes a "reserve" for future needs. The bulk of what was on the books were securities.
During this time, there was established a Social Security Board. It was widely stated that people didn't want to be on a government dole, but they would be receptive to a scheme in which they contributed in order to receive benefits at a future time. The explanations appear to be fairly clear that the payments were not actually being deposited in an account for an individual but rather were being used to pay current recipients. What is less clear is that there seemed to be an implied contract about rights, benefits, etc., and some of that confusion was perhaps intentional.

From the 1936 pamphlet:

"THE same law that provides these old-age benefits for you and other workers, sets up certain new taxes to be paid to the United States Government. These taxes are collected by the Bureau of Internal Revenue of the U. S. Treasury Department, and inquiries concerning them should be addressed to that bureau. The law also creates an "Old-Age Reserve Account" in the United States Treasury, and Congress is authorized to put into this reserve account each year enough money to provide for the monthly payments you and other workers are to receive when you are 65. "

A few years later, it was decided that the next step in this program would be to set up a trust fund. In fact, more than one trust fund, for different purposes, were set up. These trust funds are "on the books of the Treasury". Along the lines of what was just said about the misleading information:

From Jagadeesh Gokhale and Kevin J. Lansing:

"The terms "trust fund" and "contributions" were carefully selected during the crafting of the 1939 amendments to the Social Security legislation. They suggest that participants have earned the right to future benefits, and create an impression of asset management for the exclusive benefit of contributors under an inviolable set of rules. These labels have proved misleading because Congress has exercised its legal right to change the tax and benefit structure on numerous occasions. Indeed, frequent changes have caused OASI to grow from a small initiative for providing retirement security into a massive and complex program that involves huge cross-generational resource transfers. The lopsided nature of the investment deal that rewards earlier participants at the expense of those who enroll later raises serious questions about the program's intergenerational fairness."

In any event, Social Security Amendments established the trust funds. None of them are named Social Security Trust Fund; however, collectively, they are usually referred to this way. The primary trust fund in the system is known as the Federal Old-Age and Survivors Insurance Trust Fund. For all practical purposes, the funds operate together. Beginning in 1941, the designated trustees began making annual reports to congress.

The text which refers to this set-up is appended below in truncated form. It is Title 42- The Public Health and Welfare; Chapter 7 - Social Security; Subchapter II- Federal Old-Age, Survivors, and Disability Insurance Benefits; Sec. 401. Trust Funds. It says towards the beginning:

"The Federal Old-Age and Survivors Insurance Trust Fund shall consist of the securities held by the Secretary of the Treasury for the Old-Age Reserve Account and the amount standing to the credit of the Old-Age Reserve Account on the books of the Treasury on January 1, 1940, which securities and amount the Secretary of the Treasury is authorized and directed to transfer to the Federal Old-Age and Survivors Insurance Trust Fund..."

It will be apparent that prior to the creation of the Federal Old-Age and Survivors Insurance Trust Fund, the predecessor (Old-Age Reserve Account) was already a vehicle by which securities were listed as assets of the account (in other words, a "surplus" which had been transformed into debt).

2. When social security was introduced, we weren't told that we were going to be taxed for it.

PA: Per the 1936 pamphlet, the formal government explanation (prior to any trust fund discussion) explicitly described the method by which the 1935 plan would be financed, which consisted of payroll taxes collected from both the employer and the employee.

How it might have been discussed in the media is a different issue. Certainly, the entire scheme was more or less fraudulently presented.

3. When we make our social security "contributions", they go into general revenue. They are nothing more than another taxation.

PA: That is absolutely correct. Although many terms are used, it has always explicitly been a tax.

4. Since these are taxes, congress can do anything with them.

PA: That is true. The courts support the fact that as taxes, the payments don't go directly to a SS fund, nor can congress be compelled to do so. However, congress is simultaneously required to appropriate to the fund a matching amount. In part, this reads as follows (from Title 42 below):

"There is hereby appropriated to the Federal Old-Age and Survivors Insurance Trust Fund for the fiscal year ending June 30, 1941, and for each fiscal year thereafter, out of any moneys in the Treasury not otherwise appropriated, amounts equivalent to 100 per centum of -
(1) the taxes (including interest, penalties, and additions to the taxes) received under subchapter A of chapter 9 of the Internal Revenue Code of 1939 (and covered into the Treasury) which are deposited into the Treasury by collectors of internal revenue before January 1, 1951;"

I am unaware at this time of any year in which congress might have appropriated less than the 100 percentum specified, from "any moneys in the Treasury not otherwise appropriated". It is true that in 14 years since 1937, expenditures from the fund have exceeded receipts. This is not quite the same thing. As far as I know, congress has always met the requirement that they appropriate 100 percentum (or more).

In other words, amounts equal to the total paid in payroll taxes are appropriated by congress to Federal Old-Age and Survivors Insurance Trust Fund. However, in several instances the language has read that congress was authorized to appropriate ("deposit") an amount adequate to pay the benefits (1936 pamphlet: "Congress is authorized to put into this reserve account each year enough money to provide for the monthly payments you and other workers are to receive when you are 65."

This leads to two other points. First, this helps to justify the concept that a "reserve" needed to be built up, since it was assumed at the very beginning of the program that future benefit claims would begin to exceed income to pay for them. Second, there is the weasel concept about the payments you are to receive -- congress may change the level of benefits regardless of how much you have paid or they have appropriated for payments.

5. Nothing is deposited into the trust fund.

PA: That is correct. It is appropriated to the fund. All of this is done on the "books" of the Treasury. These are bookkeeping entries.

6. Because the payroll taxes aren't dedicated to the social security system, congress uses those payments to hide their real budget.

PA: Yes. The payroll taxes are used in the Unified Budget and appear to make the budget look better than it is. This does not negate the fact that congress also "appropriates" a like amount to the trust fund.

7. There is no trust fund -- the government cannot hold revolving accounts and can't invest in the private sectors.

PA: The government at all levels (local, municipal, state, federal) has myriads of trusts.

The social security accounts, or trust funds, are required to invest only in particular securities and they may not invest in the private market. Neither of these considerations mean prima facie that they are not trust funds. Those are two differerent issues. To subsequently say (for example), 'well, just because the government calls it a trust fund doesn't make it so because of the two objections mentioned here' simply avoids the fact that the government has multiple trusts and can specify any damn thing it wants to with regard to how the trust is run.

If these objections were true of the so-called social security trust fund, then it could not have others, either, which is obviously not the case.

8. There is no trust fund because it's just a name on the books and there's nothing in it.

PA: This gets close to my point. There is a trust fund by name, on the books of the Treasury.

What's in it is a different matter. How it got started:

"The Federal Old-Age and Survivors Insurance Trust Fund shall consist of the securities held by the Secretary of the Treasury for the Old-Age Reserve Account and the amount standing to the credit of the Old-Age Reserve Account on the books of the Treasury on January 1, 1940, which securities and :amount the Secretary of the Treasury is authorized and directed to transfer to the Federal Old-Age and Survivors Insurance Trust Fund, and, in addition, such gifts and bequests as may be made as provided in subsection (i)(1) of this section, and such amounts as :may be appropriated to, or deposited in, the Federal Old-Age and Survivors Imsurance Trust Fund as hereinafter provided."

Since then, congress has been directed by this section to appropriate an amount equal to 100 percentum of payroll tax payments (including fines, penalties, etc.) which amount is then put on the books of the fund at Treasury.

Which leads to part B of the complaint that there's nothing in the fund.

For 47 of the years since 1937, receipts for the Old-Age and Survivors Insurance Trust Fund have exceeded expenditures (chart: http://www.ssa.gov/OACT/STATS/table4a1.html)

The excuse for taxing at a higher rate than is needed to pay benefits has always been the need to have a "reserve". The surplus is not a reserve, however. That surplus is exchanged for "special Treasury securities" which carry interest and are not marketable anywhere else. The so-called surplus from payroll taxes that have been paid is then turned into a future government liability. Taxed once; taxed again to redeem the securities. Paying off the securities will come from other types of taxes and inflation, but it still comes out of the same pocketbooks, even if you have become a SS beneficiary by that time.

Hence, my assertion that there is a fund, there are no funds in the fund. But since there are government debts in the fund, you can expect to pay more in the future to get rid of those debts. In the case of a government trust fund which is essentially created with money that is taxed in the first place, having a Treasury security in place of the tax money is not an asset.

9. This isn't an insurance plan. Congress can change the rules.

PA: Yes and no. Congress can change the rules. Flemming v. Nestor proved that payees do not have property rights or annuities. http://www.ssa.gov/history/nestor.html Congress may choose to lower the level of benefits being provided (or raise them, which it normally does). Congress may choose to exclude a class of people entirely, even though members of that class have paid payroll taxes. A lot of the terminology is definitely misleading. SS is not an insurance policy; it was often called social insurance. This type of language, and the overly simplified explanations of a government program which often distort the real mechanics, certainly led to mistaken assumptions (sometimes deliberately).

First, without resorting to a legal dictionary, let us simply ask, what is insurance in the first place? Basically nothing more than multiple payments from many people to some central organizing principle, for the purpose of distributing payments when certain conditions are met. Payments to the system were never comparable to deposits to a personal account, a private investment, or an insurance policy. In the first case, for instance, you have property rights that you don't have with social security. In the second case, you normally don't have any guarantees. In the third case, you may expect the insurance company to comply with the provisions of the policy. Those are very elementary comparisons, not meant to be comprehensive but illustrative nonetheless.

In the case of social security, there is no policy that states you have a defined benefit. Like insurance, your payments are collected for the purpose of making payments to many parties, unlike a private investment. Unlike a typical pension plan, there is neither a defined contribution (fixed payments that don't change; the payroll tax rate has gone up from a couple of percentage point to over 15%) nor a defined benefit (congress is free to determine what level of benefits to approve). Aside from the claim in the 1936 pamphlet that you will "always" receive more in benefits than you pay, there is nothing but rhetoric as to what this social insurance is.

But that doesn't not completely invalidate use of the term "insurance" for the program, since it does provide some of the same functions that an insurance plan would, although it certainly is not equivalent to a corporate version of insurance.

One would be hard pressed to come up with a full and complete definition of insurance which would totally omit the SS version, even though the way SS really works is not what the layman has in mind when thinking of insurance. On the other hand, most insurance companies operate more like the SS scheme than people assume, too. (Constantly trying to get out of their liability to pay, constantly trying to reduce the claim, constantly trying to get find ways to get undesirables off the plan, changing the terms of the policy to their own advantage as frequently as possible,.... etc. -- you get the picture).

Lastly, whether you call it an insurance policy, an insurance plan, social insurance, or social insecurity, the funds use the term "insurance" in their titles. If you disagree about whether the plan is insurance, then go tell congress to change the name of the trust funds (the trust funds that many people deny exist) and remove the term "insurance" entirely. Fine. At least there might be some meaningful debate to come out of it.

10. Social security is only a statutory right and can be taken away at a whim of congress.

PA: True. That has nothing to do with whether a trust fund exists.

11. Employers SS contributions are a separate tax for the privilege of hiring employees and are not for matching the employees SS contributions.

PA: Different argument. If the taxes which the employer pays are included in the 100 percentum amount appropriated by congress pursuant to the title, then for all practical purposes these payments are included in the SS system scheme.

12. SS is STRICTLY for Government workers ONLY.

PA: Again, a different argument (constitutional). Per the 1936 pamphlet:

The 1936 Government Pamphlet on Social Security To Employees of Industrial and Business Establishments FACTORIES-SHOPS-MINES-MILLS-STORES-OFFICES AND OTHER PLACES OF BUSINESS "This will go on just the same if you go to work for another employer, so long as you work in a factory, shop, mine, mill, office, store, or other such place of business. (Wages earned in employment as farm workers, domestic workers in private homes, Government workers, and on a few other kinds of jobs are not subject to this tax.)"

The federal government is free to set up any system it wants for government workers. Social security was not set up for government workers. Whether the federal government had a constitutional purview for setting up SS for non-government workers is a different issue. As many people have pointed out, we put ourselves into federal control when we take the SS number. The entire argument about whether someone who is eligible by working in a covered employment must take a SS number has pretty well been decidedyou are not required to have a SS number to work, unless you are required to do so by virtue of some status which makes you subject to federal jurisdiction (e.g., a federal employee).

In any event, SS was not set up for government workers, government workers were excluded, and it was an extension of assistance programs already in place at the federal and state levels. The government put on a big campaign to make people not only think they would be eligible for benefits, but also that it was mandatory for them to participate. Again, that is an issue that has nothing to do with whether or not there is a trust fund.

13. I don't have a SS number and I don't believe there is a trust fund. My life is not impacted by that argument.

First, the payroll taxes that are extracted from employers must be added to the cost of doing business. Everyone pays more because of it.

Second, at the end of 1998, the "assets" (in millions) listed for the Old-Age and Survivors Insurance Trust Fund was $ 681,645. Virtually this entire amount would perforce (in accordance with all the preceding legislation and code since 1935) be "invested" in special Treasury securities that pay interest.

How do you think those Treasury securities and interest are paid?? They must be paid by raising additional government revenue. At this time, my personal opinion is that they cannot be paid (unless congress amends something) by taking payroll taxes and giving them to the Treasury department to pay off the securities that are on the trust fund books. The reason this can't happen is that an amount equal to 100% of the taxes are to be appropriated by congress to the trust fund books. So, any excess in payroll taxes is simply not available elsewhere to pay off the securities. If that appropriation process should change in the future by amendment, the entire scheme would be in the bizarre situation of taxing payrolls at a higher amount than is needed to pay benefits that year, and diverting those sums to Treasury for the purpose of removing existing government debt from the books of the trust fund, such government debt having arisen in the first place from excess payroll taxes. Could happen, but not likely.

It's been suggested by some smarter people than I am that the government IOUs can be erased by reducing the SS benefits in the future. Well, that brings up the same problem as above. Reducing benefits merely increases the ratio of surplus in the appropriated bookkeeping entry, which surplus is mandatorily "invested" in those same special Treasury securities. Reducing benefits under that scenario only worsens the fundamental problem!

Pretty much the only way to redeem those securities is going to be through additional government revenue which will mean additional taxes and more inflation.

14. The entire system is a scam because it takes from one person or group and gives to another.

PA: Right again. It is a scam. That doesn't negate the problems outlined above, which will have to be resolved somehow anyway.

15. The entire system is a scam. The FED has told us that the monetary system works exlusively with credit. When we pay taxes, it isn't even money. All that is going on is bookkeeping entries. No debt can be paid under this system.

PA: From your perspective about the FED, you are right. In fact, I've mentioned many times in the last few days that congress directed Treasury to create the trust fund on its books, and when it appropriates to the fund, it is nothing but a bookkeeping entry.

Like point # 14, however, this argument doesn't prove that there is nothing called a trust fund that is getting bookkeeping entries -- which entries are then converted into Treasury securities (debt). Since the bookkeeping entries appropriated to the fund were based on payroll taxes (taken from the accounts of employers and employees), they were essentially confiscated hashmarks, that had been acquired by work. Those hashmarks went through several stages before getting on the trust fund books, but they fall under the term "taxes".

When the new hashmarks were recorded on the trust fund books at Treasury, following an appropriation by congress, the extra hashmarks (not needed currently for expenditures) were traded for new "paper" (which also arises from the creation of hashmarks). So now, the hashmarks are multiplied, on more than one set of books. How will those existing hashmarks be erased? Congress will acquire even more new hashmarks from more bank accounts (raise existing taxes, fines, licenses, issue more debt [inflation], sell off assets, find new ways to tax, etc.) and Treasury will use them in order to "redeem" the special securities.

Conclusion

In other words, everyone is affected, whether they have a SS number or not! You will be paying, in direct and indirect means (I listed some ways already, including inflation), in order to redeem special Treasury certificates that the trust fund (that many claim doesn't exist) "invested in" with surplus payroll taxes.

If you don't have a SS# and don't pay payroll taxes, you will still pay your share of the national cost to redeem those securities. If you do have a SS# and pay payroll taxes, guess what? You will pay twice!! First when the excess taxation was levied on your check and second when your share of the national cost to redeem those securities is spread around.

Furthermore, for those who have been paying payroll taxes, it is particularly disturbing to realize that their own budgets have been reduced by those amounts, which could have been used to improve their own financial well-being based on their own earnings. Furthermore, the payroll taxes taken from them were far in excess of the amount of benefits being paid out in all but 14 years. That surplus, since 1937, has been represented as a reserve for the times when benefits will exceed payments. Instead, that surplus has been used to create more government debt.

I know that it's gotten to the point that I am just repeating myself. Hopefully, most people have been patient enough to read the two posts before now and thus understood more about the big picture surrounding all the complaints (the 15 points, which are certainly by no means exhaustive). The surplus payroll taxes, which should be an asset for future use, are turned into liabilities! It's like a prince that is turned into a toad. Everyone ignores the fact that the prince is gone and in his place is a toad (sure, a toad with promise, but nonetheless a toad is not an asset).

Instead of being turned back into a prince when he is kissed (redeemed), he just turns into a prince-sized toad!

42 USC Sec. 401 01/26/98
TITLE 42 - THE PUBLIC HEALTH AND WELFARE
CHAPTER 7 - SOCIAL SECURITY
SUBCHAPTER II - FEDERAL OLD-AGE, SURVIVORS, AND DISABILITY INSURANCE BENEFITS

Sec. 401. Trust Funds

(a) Federal Old-Age and Survivors Insurance Trust Fund :There is hereby created on the books of the Treasury of the :United States a trust fund to be known as the ''Federal Old-Age and :Survivors Insurance Trust Fund''. The Federal Old-Age and Survivors :Insurance Trust Fund shall consist of the securities held by the :Secretary of the Treasury for the Old-Age Reserve Account and the :amount standing to the credit of the Old-Age Reserve Account on the :books of the Treasury on January 1, 1940, which securities and :amount the Secretary of the Treasury is authorized and directed to :transfer to the Federal Old-Age and Survivors Insurance Trust Fund, :and, in addition, such gifts and bequests as may be made as :provided in subsection (i)(1) of this section, and such amounts as :may be appropriated to, or deposited in, the Federal Old-Age and :Survivors Insurance Trust Fund as hereinafter provided. There is :hereby appropriated to the Federal Old-Age and Survivors Insurance :Trust Fund for the fiscal year ending June 30, 1941, and for each :fiscal year thereafter, out of any moneys in the Treasury not :otherwise appropriated, amounts equivalent to 100 per centum of- :

: (1) the taxes (including interest, penalties, and additions : to the taxes) received under subchapter A of chapter 9 of the : Internal Revenue Code of 1939 (and covered into the Treasury) : which are deposited into the Treasury by collectors of internal : revenue before January 1, 1951; and :

: (2) the taxes certified each month by the Commissioner of : Internal Revenue as taxes received under subchapter A of chapter : 9 of such Code which are deposited into the Treasury by : collectors of internal revenue after December 31, 1950, and : before January 1, 1953, with respect to assessments of such : taxes made before January 1, 1951; and :

: (3) the taxes imposed by subchapter A of chapter 9 of such Code : with respect to wages (as defined in section 1426 of such Code), : and by chapter 21 (other than sections 3101(b) and 3111(b)) of : the Internal Revenue Code of 1954 with respect to wages (as : defined in section 3121 of such Code) reported to the : Commissioner of Internal Revenue pursuant to section 1420(c) of : the Internal Revenue Code of 1939 after December 31, 1950, or to : the Secretary of the Treasury or his delegates pursuant to : subtitle F of the Internal Revenue Code of 1954 after December : 31, 1954, as determined by the Secretary of the Treasury by : applying the applicable rates of tax under such subchapter or : chapter 21 (other than sections 3101(b) and 3111(b)) to such : wages, which wages shall be certified by the Commissioner of : Social Security on the basis of the records of wages established : and maintained by such Commissioner in accordance with such : reports, less the amounts specified in clause (1) of subsection :

: (b) of this section; and : : The amounts appropriated by clauses (3) and (4) of this subsection

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