Your Social Security Money Is GONE, Understand?

by | Feb 2, 2023

Your Social Security Money Is GONE, Understand?

by | Feb 2, 2023

empty pockets

After French protestors took the street to complain about the increase in the retirement age, I read quite a few jokes in social media about how protesting in France is the local pastime.

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That may be true, but let it not be said that Americans don’t feel very, very strongly about their own national pension program. I say this because in response to my article last week on raising the Social Security age, I received more furious responses than I have for any other article in many years. Here’s one example from a man whose initials are MF:

What are you, just nuts??? Having paid in to SS for over 40 years and experiencing big gov losing my records for some of my most productive years, so my stipend has been reduced; And after my wife and I planned for retirement and saved while contributing to SS, my wife died 2 months after her 65 birthday never having received a single payment from SS after paying in for 42 years. There are no spousal survivor benefits. All the contributions she paid in are gone. Age of qualification isn’t the issue. Corruption, graft and top heavy bureaucracy, while incompetents administer at the front line are the problems. Either wise up, do your research or stay away from topics you seem totally ignorant about.

Here’s one from reader RG:

I didn’t make the promise [to pay a pension at age 65] the guvvmint did. … You are a useless f**k wasting computer ink. Get your head out of your a** and breath the gathering doom. My father fought in France in WW2 and Korea, didn’t live long enough to collect his benefits nor my mother-in-law. F**k you again.

A less emotional reader suggested that instead of reducing Social Security payouts—as I suggested—the better plan would be to “to do away with the social security program and give me the money I contributed over the past 45 years, with interest of course.”

These sorts of responses all share a common thread. Many are under the impression that they have some sort of promise or agreement with the federal government about pension funds. The supposed agreement is that money these former workers “paid into” the Social Security “trust fund” will be paid back to them. Some seem to even believe that the money is stored somewhere, earning interest, and can be returned.

Well, I have bad news for everyone who sincerely believes the government lie and thinks they have some sort of claim to today’s tax revenues due to a “promise” from the feds decades ago: there is no promise, no agreement, and you have no legal claim to money that was “paid in.”

It’s Not Insurance. There Is No Trust Fund. Your Money Is Gone. 

This is because Social Security is not “insurance.” It’s not a “trust fund.” It’s just a tax and a welfare program. The money current pensioners paid in was spent on other people years ago. It’s gone.

The legal realities behind Social Security were well summarized by Charles Rounds twenty years ago:

Social Security is not an insurance program. A Social Security “account” bears no legal resemblance whatsoever to a bank checking or saving account. Social Security bestows no contractual rights or any other type of property right on workers.

In other words, Social Security as it is currently structured has nothing to do with legally enforceable promises or guarantees. There is no “trust fund” as that term is commonly understood, no funded segregated accounts, no IOUs or bonds stored in some lockbox, or anywhere else for that matter. Social Security is neither solvent nor bankrupt.

In Flemming v. Nestor, 363 U.S. 603 (1960), the U.S. Supreme Court set the record straight. Social Security is actually nothing more than an umbrella term for two schemes that are legally unrelated: a taxation scheme and a welfare scheme.

Workers and their families have no legal claim, grounded in the Fifth Amendment or elsewhere, on the FICA tax payments that they make into the U.S. Treasury, or that are made on their behalf. Those funds are gone, commingled with the general assets of the U.S. government and fully available for purposes unrelated to Social Security. Being mere welfare recipients—not creditors or holders of equitable property rights—workers have hopes or expectations of future benefits, but no enforceable rights to them.

Nestor stood on the shoulders of a previous case, Helvering v. Davis, 301 U.S. 619 (1937). In Davis, the Court had confirmed that Social Security is not an insurance program. During the Helvering oral arguments, the Chief Justice had anticipated Nestor when he speculated from the bench that Congress would have the authority to abolish the welfare component while keeping the taxation component in place.

Thus, it is inappropriate either for the left to call Social Security “solvent” or for the right to call it “bankrupt.” A welfare program funded by general tax revenues cannot go bankrupt because its sponsor is a governmental entity with the power to tax and print money, not to mention reduce or eliminate altogether future benefits. The terms “solvency” and “bankruptcy” are appropriately applied to human beings, corporations, trusts, and the like. But not to Social Security. Social Security is not an entity.

This is why raising the retirement age for Social Security has nothing to do with what is “paid in.” The federal government could abolish Social Security altogether, yet keep the Social Security tax in place.

People tend to get really worked up about this because they believe on some level that they are “owed” a return on their Social Security taxes. The special status of the Social Security tax in the minds of many people is illustrated by the fact that people rarely claim to be owed the money they “paid in” to other tax schemes such as the income tax, or the gasoline excise tax, or tariffs. In reality, though, these are all just taxes of exactly the same sort with no tie to any specific type of spending. Congress and the President have total control over how to spend all of it. They always have.

It’s Impossible to “Pay Back” Social Security Revenues to Those Who “Paid In”

The angriest readers do get at least one thing right. They correctly see that raising the retirement age for Social Security is indeed a reduction in benefits. That, of course, is why they’re so angry in the first place. They understand that raising the age means a reduction in spending that they’re likely get less of “their” money.

Oddly, though, one can often find people who claim to be for “small government” or lower taxes, but still insist they want “their” money. Unfortunately, it is not possible to “pay back” the people who paid the tax in the past. “Restitution” would amount to nothing more than taxing current taxpayers to benefit past taxpayers. In other words, the government can’t return the money it stole in the past. It’s impossible. The money’s gone. Taxing today’s workers to pay off pensioners is just creating a new group of tax victims. There’s nothing fiscally sound or moral about such a scheme. It’s just more state-controlled wealth redistribution.

The right thing to do with Social Security is what is also the right thing to do when it comes to all federal programs: reduce both spending and taxation. Merely cutting the Social Security tax doesn’t solve anything because that only increases deficits, and thus increases taxation via price inflation while requiring more taxation and spending to pay interest on the growing debt. The only real answer lies in cutting spending, and one way to do that is to raise the age to receive benefits. That’s something many Social Security recipients apparently don’t like to hear.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

About Ryan McMaken

Ryan McMaken is the editor of Mises Wire and The Austrian. Ryan has degrees in economics and political science from the University of Colorado, and was the economist for the Colorado Division of Housing from 2009 to 2014. He is the author of Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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