About Those Social Security ‘Promises

About Those Social Security ‘Promises’

Cato Institute - Thursday October 29, 2015

by Charles Hughes

In the Republican debate last night, former Gov. Mike Huckabee of Arkansas criticized calls for Social Security reform, saying “people paid their money. They expect to have it,” and that the country needs to honor its promises to seniors. There are problems with this line of argument: the Social Security payroll taxes a person pays are not tied to the benefits they receive in a legal sense, and the ‘promises’ made by Social Security are, and always have been, subject to change.

Congress has had the authority to alter Social Security since its inception. Section 1104 of The Social Security Act of 1935 explicitly says: “The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress.”

Not only does Congress have the right to make changes, it has done so multiple times in the past. Sometimes these changes are smaller things, like a technical correction to the indexation formula, but there were also larger reforms that were part of attempts to address the programs solvency issues.

The Supreme Court revisited the issue of Social Security’s promises in Flemming v. Nestor, in which Nestor, who had paid into Social Security for 19 years and begun to receive benefits, was then deported for previous ties to the Communist Party. Nestor tried to appeal the termination of his benefits, citing his previous contributions, but the Supreme Court upheld it, saying:

To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands… It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.

The other aspect Huckabee touches on is the link between the taxes paid in and the benefits a person ultimately receives, implying that a worker’s contributions are kept in some kind of silo to be paid out to them at a later date. As another Supreme Court case found, this is not true.

In Helvering v. Davis (1937)the Court heldthat Social Security was not a contributory insurance program in the sense that  “[t]he proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.” Despite how Huckabee and his fellow defenders of the status quo describe the program, the payroll tax payments a person pays into Social Security have no direct link to the benefits that they receive in a legal sense: they  are subject to future changes made by Congress and dependent on the program having sufficient revenue.

Huckabee doesn’t need to familiarize himself with these decades-old Supreme Court cases or the Social Security Act to be able to understand the problems with his invocation of the program’s ‘promises’. Anyone, including Huckabee, can see this for themselves in the Social Security Statement that the Social Security Administration periodically sends to workers:

Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time.

The ‘promises’ with Social Security always came with an asterisk, and beneficiaries are not entitled to a certain amount because they have contributed payroll taxes. In the past the law has been altered to change the deal facing beneficiaries, and there will undoubtedly have to be more changes in the future if Social Security is to remain viable. If we maintain the status quo and do nothing, benefits will have to cut by 23 percent across the board when the combined trust fund is exhausted in 2034. There can be disagreements about the best way to reform Social Security, but when it is facing trillions in unfunded obligations and the certainty of drastic cuts in the future absent reform, doing nothing is not a feasible option.

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