The Social Security Tax; C. Manion

Having thus raised the money, the Supreme Court said that Congress could, in its future discretion, spend that money for whatever Congress then judged to be the gen eral welfare of the country. The Court held that Congress has ne constitutional power to earmark or segregate cer tain kinds of tax proceeds for certain purposes, whether the purposes be farm-price supports, foreign aid, or social security payments. 1 1 U.S. V8. Butler, 297 U.S. 1; Stewart Machine Company V8. Davis, 301 U.S. 548; Helvering V8. Davis, 301 U.S. 619. [428 ] All federal taxes, income taxes, estate taxes, gasoline taxes, and social security taxes, go indiscriminately into the same general fund of the federal treasury. From that general fund, Congress makes periodic appropriations for all the purposes of the federal government, including payments for social security benefits. Congress could continue to collect the so-called social security payroll taxes even though Congress discontinued all social security benefit payments. Congress could wipe out the social security payroll taxes and yet continue to pay all present social security benefits out of the general tax receipts of the federal treasury.

A Legal Illusion Any apparent connection between the collection of social security payroll taxes and the payment of social security benefits is purely coincidental. The Supreme Court has held that Congress is without Constitutional power to establish such a connection. For this reason, the so-called Federal Old Age and Survivors' Insurance Re~ serve Fund is actually nonexistent. The legal illusion of such a fund was conjured up to dissolve popular resist ance to one of the most cruel and unjust systems of taxa tion ever imposed upon the American people. The fraud of the great deception is the deliberate and officialmisrepresentationof social securitytaxes as pay ments of insurance premiums for the right to get back specified benefits at a specified time. There is no such right. The government is under no contractual obligation [429 ] to make any return payment at all. From the very begin ning, the Social Security Tax Act has carried this provi sion: c'The right to alter, amend, or repeal any provision of this act is hereby reserved to the Congress.~~ Pursuant to that reservation, Congress has revamped and changed the taxes, benefits, and the coverage of social security many times during the past 15 years.

When the Act was first passed in 1935, it expressly ex empted nine separate classifications of people ranging from agricultural labor to the self-employed. One after another, each of these exempted classifications has been forced into the system until under the current pending resolution, only medical doctors are left out. No Limit The original tax rate was 1 per cent on the first $3,000 of earnings. Under the pending resolution, the present tax is raised to 2~~ per cent, or 25 per cent above the present level. Since both employer and employee must pay this tax, this means that 5 per cent of every pay check under $4,200 a year will be funneled into the federal treasury. The next step will be to increase both the tax and the level of salaries taxed to include the first five thousand and then the first six thousand of annual earn i.ngs. There is no limit to the high range of this money-rais ing· escalator except the complete confiscation of all salaries by the government.

Meanwhile, the popular illusion of a Federal Old Age [430 ] and Retirement Insurance system enables the federal spenders to roll up billions of dollars in additional tax revenues through social security wage withholding that they never could collect if they called these extortionate taxes by their right name. Through 1950 to the beginning of 1955, the federal government collected $18.97 billion in social security taxes. Throughout the same period, the government paid out social securitybenents totaling $11.72 billion. t:t:profif:1or Loss? What happened to the difference) the "cprofif'so-called, of $7.25 billion? It was spent as fast as it came .in foe foreign aid, national defense, and other current expenses of the government. What was put aside for the ultimate retirement of those who paid the $18.97 billion in taxes between 1950 and 1955? Merely $7.25 billion worth of government IOU's.

At the end of last March the much advertised reserve fund contained $20.4 billion-all in government lOr.!s. This accumulation is not an asset. On the contrary, it costs current taxpayers $500 million annually in mainte, nance or interest charges. Eventually all these bonds must be paid by additional taxation. Testifying before the Ways and Means Committee of the House of Representatives in 1952, the chief actuary of the Social Security Administration said: ""The present trust fund is not quite large enough to payoff the bene fits of existing beneficiaries"-those already on the receiv[431 ] ing end, in other words. This was before the 1954 "liberalized coverage 7 ' was enacted into law. The same \vitness· now believes that it would take $35 billion just to pay the people now receiving benefits. If you are paying social security taxes now, there is thus $15 billion less than nothing in the fund that you are supposed to be accumulating against your retirement and old age. Small wonder that the Secretary of the Treasury recently testified that "under the present provisions of collections and disbursement the Old Age Survivors' In surance system is actuarially unsound."2 That is the great understatement of the current fiscal year.

2 Congre$$iona'lRecord, July 5, 1955, page A 4871. [432 ] ABOUT THE AUTHORS FREDERIC BASTIAT (1801-1850) was an economist, states man, author, and ardent advocate of freedom. "Free dom in Transactions," written in 1848, was republished by the Foundation in May 1955 from the Register Publishing Company's 1944 edition of Social Fallacies. <'The State," published by the Foundation in Novem ber 1955, was translated and condensed by Mallory Cross Johnson from Sophismes Economiques, Vol. I (Paris: Guillaumin, 1878). HART BUCK is statistician of the Toronto-Dominion Bank. "Freedom To Shop Around" was an address before the Queensway Lions Club, Toronto, Canada, February 10, 1954, and was published by the Foundation that same year. JOHN CHAMBERLAIN is the well-known literary critic and a regular contributor to The Wall Street ]ournal, The Freeman, and other publications. "The Forgotten Man" is from the September 1955 issue of Ideas on Liberty.