Hostile Takeover: Resisting Centralized Government's Stranglehold on America (36 page)

Before we can begin to reform entitlements, we have to overcome the myths surrounding them. Clearly, they’ve corrupted our politics. Americans have been told, from day one, and believe, that Social Security and Medicare are “insurance”; that the payroll taxes that “fund” them are “contributions”; that there is an “account” with your name on it in Washington; that the government is really just holding your money in trust for you until you retire. All those notions are false, part of an elaborate myth—a web of lies—perpetuated by politicians to make it as hard as possible for us to change these programs.

Where did the myth begin? How has it persisted for so long?

A LIVING DOCUMENT

I
N 1934,
P
RESIDENT
F
RANKLIN
D. R
OOSEVELT’S ADVISERS STRUGGLED
to identify the constitutional basis for their envisioned social security program, which would involve forcing workers to pay a tax on their wages to fund a welfare benefit for the aged. There’s no mention in the Constitution of any power to undertake a national program of social insurance or a power to compel citizens to “save” for their own retirement or pay taxes for other people’s. Additionally, the Tenth Amendment declares: “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
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So without a clear basis in the Constitution, Roosevelt’s proposal could have been struck down by the Supreme Court.

Two bases, however, seemed at least plausible to Roosevelt’s team. The first was the tax-and-spend power, more commonly known as the General Welfare Clause, which declares: “The Congress shall have Power to lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States.”
13
The second was the Commerce Clause: “The Congress shall have Power . . . to regulate Commerce . . . among the several States.”
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Whichever basis they chose would affect the program’s structure and how it would be sold to Congress and the courts.

From the beginning of the republic, the tax-and-spend power had been the subject of a fierce debate between the so-called Madisonian and Hamiltonian interpretations. Alexander Hamilton famously read the words “to provide for the general Welfare of the United States” as a distinct grant of power
in addition
to the other enumerated powers of Congress. Madison, however, read it as a general rule of construction intended to
limit
those powers. The latter reading left no room for a federal social insurance scheme.

Up until the 1930s, congresses and presidents went back and forth, with Madison’s more restrictive view tending to prevail before the Civil War, and Hamilton’s more expansive one after it. But there was no consistent winner; and all the time, the Supreme Court carefully avoided choosing sides. Now, in 1934, with New Deal legislation falling left and right at the hands of a seemingly Madisonian Supreme Court, basing Social Security on the tax-and-spend power seemed risky.
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And yet the Commerce Clause seemed even less promising. How could the administration claim with a straight face that old-age benefits are a “regulation” of interstate “commerce”?

The problem seemed insoluble. But then FDR and his team came up with an idea. They would have it both ways. They would take their chances in court with the tax-and-spend power, but in order to get it through Congress and make it politically untouchable, they’d also couch it, outside the courtroom, as mandatory insurance authorized under the Commerce Clause. Armed with this legal rationale, the team in January 1935 unveiled the president’s Social Security plan, describing it from the beginning as insurance, the benefits of which would come “as a matter of right.” Later, when defending the enacted legislation in the Supreme Court, they would declare just the contrary: that the Act “does not constitute a plan for compulsory insurance within the accepted meaning of the term ‘insurance’”; rather, it is a mere “bounty” to which the pensioner “has no legal right.”
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In other words, it would be either property or a privilege, depending on who was being lied to.

To bolster the impression that Social Security payroll tax payments were insurance, they were publicly (though not in the bill) called “contributions.” To bolster the opposite impression—that the program was
not
mandatory insurance—the amount of an individual’s payroll tax payments was not tied to the amount of his benefits. Instead, eligibility was determined simply on the basis of one’s age, industry, and having a minimum number of work years; the amount of the benefit was determined by one’s average earnings. For additional security, the draftsmen of the Act carefully placed the payroll tax and old-age benefit elements in two widely separate titles of the bill. The payroll tax, they would tell the judges, was merely to “raise a revenue,” while the old-age benefit was simply a spending program to promote the “general welfare” in the current crisis. Each part, viewed by itself, would appear to be well within Congress’s powers to tax and spend for the general welfare.

BACK TO THE FUTURE

T
HE
C
OURT BOUGHT IT.
T
HE TWO-FACED STRATEGY WORKED.
T
HE
justices not only upheld Social Security as a valid exercise of the tax-and-spend power, but in what is today remembered as the “revolution of 1937,” the Court also took the opportunity to come down firmly on the side of the Hamiltonian interpretation of the General Welfare Clause, while giving up on any further attempts to enforce limits on the Commerce Clause.
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With these revolutionary changes, the Court effectively liberated the elected branches—the politicians—to spend, tax, and regulate to their hearts’ content. The modern welfare state had received judicial clearance for takeoff.

The FDR strategem worked so well that Democrats would follow a very similar path seventy-five years later, with Obamacare.

Although President Obama’s health care mandate is enforced by a fine collected by the IRS, Democrats took care to call it a “penalty.” After enactment, when ABC commentator George Stephanopoulos said the mandate met the dictionary definition of a tax, President Obama testily replied: “I absolutely reject that notion.”
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Yet as soon as the case went to court, it seems, the president had a change of heart. Now the mandate
was
a tax. As the
New York Times
reported: “When Congress required most Americans to obtain health insurance or pay a penalty, Democrats denied that they were creating a new tax. . . . But in court, the Obama administration and its allies now defend the requirement as an exercise of the government’s ‘power to lay and collect taxes.’” The
Times
added: “in a brief defending the law, the Justice Department says . . . Congress can use its taxing power ‘even for purposes that would exceed its powers under other provisions’ of the Constitution.”
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And even as Team Obama was attempting to bamboozle the Court, it was
still
making the opposite argument right across the street, in the Capitol—unashamed, apparently, to be speaking out of both sides of its mouth.
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“NO DAMN POLITICIAN”

B
UT BACK TO
S
OCIAL
S
ECURITY.
Y
EARS AFTER UPHOLDING THE
A
CT,
the Court would clarify a vital point, initially obscured by Roosevelt’s clever approach: No one is
entitled
to Social Security benefits as a legal matter. Congress can change or eliminate them at any time, like any other welfare program.
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That important clarification came a generation later, however. In 1935, the myth was off and running while the truth was still tying its shoes. In a 1936 pamphlet, the Social Security Administration declared:

Beginning November 24, 1936, the United States Government will set up a Social Security account for you, if you are eligible. . . . The checks will come to you as a right. . . . [Y]ou and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay. . . . Meanwhile, the Old-Age Reserve fund in the United States Treasury is drawing interest, and the Government guarantees it will never earn less than 3 percent. . . . What you get from the Government plan will always be more than you have paid in taxes and usually more than you can get for yourself by putting away the same amount of money each week in some other way.
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Every claim made in this excerpt is either a lie or an exaggeration. But that didn’t stop the New Dealers, who were only warming up. A pamphlet published the following year went even further: “[Your payroll tax] payments are like premiums paid for fire insurance or accident insurance” or “saving for a rainy day.”
23

President Roosevelt would later confirm the duplicitous nature of the “insurance” line:

[Regarding the payroll taxes being regressive,] I guess you’re right about the economics, but those taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions. . . . With those taxes in there, no damn politician can ever scrap my social security program.
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Though, as we’ve seen, the payroll taxes aren’t a “legal” right in the property sense, all those decades of politicians lying to us have indeed made collecting government retirement benefits a “moral” and “political” right that “no damn politician” dares to touch without fear.
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The trouble is that the irresistible force of political reality is now coming up against the immovable object known as math. The big entitlements are unsustainable in their current form. They must be changed.

The beautiful thing here is that we know recovery is possible, even at this late date. We can make the big entitlement programs live up to the actual promises made for them by the “damn politicians” of the past. We can make them sources of security
through
rather than
in lieu of
liberty. We know this, because we know that freedom works. Freedom, and the power of individual ownership, offer a road map to ensure that our children and grandchildren will live in a better, wealthier, and more secure world in retirement. Freedom, and the decentralization of information, will ensure that the political lies of the past will not work on future generations. The gig is up, and the people now have access to the facts.

“#SUCKS”

A
S
I
NOTED EARLIER, MORE THAN 40 MILLION
A
MERICANS DEPEND
on Social Security to provide a significant share of their retirement income. But Social Security is going bankrupt, and absent reform, sometime in the next three decades the benefits will have to be cut, or taxes will have to be raised.

The basic design of the program is modeled on the original “social insurance” plan adopted in Bismarck’s Germany in the late nineteenth century. The Iron Chancellor created “social security” to help him control the people and protect his position of power. Under his model, which American Progressives fell in love with, today’s workers pay taxes to support today’s retirees, and each successive generation supports the generation that came before it. This is often described as a “social contract” or “intergenerational compact.” What that means in practice: people aren’t really saving for their own retirement; they’re paying for their parents’ or grandparents’. And the promise is that their children and grandchildren will come along and do the same for them, ad infinitum. That’s why they have to call it “social” insurance. As far as the math goes, it’s a model that works, as long as each generation that comes along is about the same size as the one that came before it and the benefits stay about the same in real terms.

But that never happens.

The twentieth-century “baby boom” has thrown the worker-to-retiree ratio out of whack. In 1935, there were about forty-two working-age Americans for each retiree. By 1950, that number had fallen to sixteen workers per retiree. Today, there are just three workers; and by 2035, the program’s centennial, there will be only two workers for every retiree. To be clear, those two workers are your children, laboring under a yoke of debt that they are not responsible for creating.

The share of the U.S. population over sixty-five is growing, while the share represented by workers aged twenty to sixty-four is shrinking.
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Meanwhile, the burden on those workers is growing, because our politicians have continually voted major benefit hikes for their constituents. For the program’s first three decades, Congress would come back every two years, like clockwork, and vote higher benefits for retirees. In the early 1970s, when inflation was taking off, Congress decided to switch to automatic cost of living increases, but for good measure they also supercharged the basic benefit so each new generation’s retirement checks would be substantially bigger than those of the previous generation. They did this by having the amount people receive when they first retire grow over time, at the same rate as workers’ wages, rather than with general inflation (prices). So the benefits, rather than just retaining their existing purchasing power, grow in real terms over time.
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