The Constitution Changed Without a Vote – The Social Security Act of 1935

By David F.  Delorey, Jr.
In a mere four pages, ratified in 1788, the Constitution of the United Sates of America became a body of fundamental law which guarantees the natural God given rights of the people to establish justice, insure domestic tranquility, provide for a common defense, promote the general welfare and secure the blessings of liberty.

One hundred and forty one years later, the Great Depression began on Oct.  29, 1929 when the stock market crashed.  Suddenly, millions of people were out of work, bread lines formed to feed families, and the elderly could not support themselves.  A potential solution, like the one adopted in Germany in 1889, was a “social insurance” program run by the federal government which stressed the government’s responsibility to provide for citizens’ economic security.  In 1932, Franklin D.  Roosevelt was elected and he put forth such a plan where workers contributed to their future economic security through taxes paid while they worked and then paid out when they retired or became disabled.

From the outset, Roosevelt’s plan had a major stumbling block – – a plain reading of the Constitution finds absent the power of Congress to implement and run a federal social insurance program.  But, such legal limitation did not deter Congress, or the President, or the Supreme Court to assume powers not found in the United States Constitution.  The day that the Constitution was changed without a vote of the people came on August 14, 1935, when President Roosevelt signed the 33 page Social Security Act of 1935 into law.

This legislation indeed wove a new de facto constitutional thread into the United States constitutional fabric when the Congress and the President bypassed the Constitution Amendment process in Article V of the Constitution and ignored the limits of Congressional power stated in the “Enumerated Powers” in Article I of the Constitution.  Implicit with the avoidance of the required constitutional compliance process was that the several sovereign states were denied their right to deliberate, debate and ratify the law.  As a result, Congress and the President, on their own, raised everyone’s taxes and created a new federal government run insurance program bearing upon all the states.

Many have claimed over the years that the Social Security Act is unconstitutional which is the Constitutional right of the people to do so.  There is plenty of evidence to support the claim.  However, even if they are right and it is, the program is so deeply ingrained in the workings of Republic that such may be impossible to reasonably remove or replace it.  This constitutional precedent is now manifest as one of the largest financial burdens on the American taxpayer.  Along with the subsequently enacted federal social entitlement programs of Medicare and Medicaid in 1965, these programs now collectively pose a significant financial threat to the very existence of the Republic as the question of irresponsible levels of deficit spending by the Congress, potentially causing a bankruptcy of the government, becomes part of the political narrative today.

This evolving journey into the consequences of the Social Security Act began with its implementation in 1937 and its administration by the Congress.  The program started modestly with 60% of all wage earners, largely older Americans, being taxed about 2%.  According to the act, all tax revenue collected were to be deposited in a trust fund.  The fund, known as the Social Security Trust Fund, is technically comprised of two component funds in the original Social Security Act of 1935: Section 201, the Old-Age Survivors Insurance program; and Section 904, the Disability Insurance Trust Funds.

The Republic’s Social Security Act unsustainable financial dilemma came as a result of Congress converting what started as a self-funded program into an enormous de facto pay-as-you-go program by appropriating all “surplus” tax revenues [monies collected which exceed what was needed to pay benefits] to fund the annual federal budget.  With this process, Congress ignored its fundamental fiduciary responsibility to retain these assets in the Treasury to pay future benefits, and clearly ignored the word “trust” in the “Social Security Trust Fund.” Today, the Social Security Trust Fund contains only promises that the federal government will repay the fund.

This deficit spending process was facilitated by the specific wording in sections 201 and 904 of the original 33 page Social Security Act of 1935.  Both sections state that all monies collected may only be invested “in interest-bearing obligations of the United States or in obligations guaranteed as to both principal and interest by the United States.” Congress was left to determine the nature of these “obligations”, which presumably could have included such tangible assets as gold, silver and the like.  Instead, Congress elected the option of “borrowing” the “surplus” taxes collected from the Social Security Trust Fund and spending the proceeds on other things.  From an accounting perspective, Congress created nothing more than a “Ponzi Scheme” because there is no guarantee that future tax payers can sustain the level of payments to current beneficiaries forever.  Such a system will eventually collapse, and could result in putting the federal government in default of its “obligations.”

By 1995, 95% of the American workforce, not subject to Congressional exclusions, were covered by the Social Security Act.  While many exemptions have been eliminated through 1990, six million government workers in the ten states of: Alaska, California, Colorado, Illinois, Louisiana, Maine, Massachusetts, Nevada, Ohio and Texas are still exempt from the act and it’s taxation requirements.

By 2011, more than 56 million people were covered by the Social Security Act spending $731 billion or 20% of the federal budget.  The Social Security Trust Fund had about $2.6 trillion in assets on the books.  The Federal Insurance Contributions Act (FICA) payroll tax rate was 6.2%, paid each by the employee and employer, for a total of 12.4%, for the first $106,800.00 of income.  There were no “surplus” revenues because payouts to beneficiaries exceeded the tax payments deposited in the Social Security Trust Fund.  Federal spending that year was $3.46 trillion and the Treasury posted a $1.3 trillion federal deficit.

Today, the Social Security Act is now the largest government social insurance program in the world measured in dollars paid.

Predictions are that the Disability Insurance Trust Fund [Section 904 of the Social Security Act] will exhaust in 2016.  After 2020, the United States Treasury will need to fund the entire program by redeeming the unfunded “obligations” Congress created to pay program beneficiaries.  From an accounting perspective, the Treasury will continue to use this process until the projected absolute exhaustion of the entire Social Security Trust Fund balance sheet in 2033.

The problem is getting worse.  The current economic recession, world economic problems, and other matters are putting a formidable upward pressures on future projections.  Evidence is that the 2012 projection from the “Social Security and Medicare Boards of Trustees” exhaustion date of 2033 comes 3 years earlier than 2036 exhaustion date projected in 2011, only one year earlier.

Congress is well aware of the “ticking time bomb” aspect of the Social Security Trust Fund.  Printing money is not the solution – it causes inflation which every American suffers from.  Kicking the can down the road” only passes the problem on to our children and grandchildren.  A “Balanced Budget” amendment to the Constitution pursuant to Article V of the Constitution would help.  But, Congress has consistently opposed it simply because balancing the books takes away the politically popular option of deficit spending.  This whole matter is plainly a “third-rail” issue because the people who funded the program through payroll taxes are not to be trifled with for fear that these people will reflect their outrage at the ballot box.  Getting reelected is indeed at risk.  Predictably, sustained legislative paralysis has ensued.  The fact is that the problem is real and it is being ignored by Congress and the President.

The consequences of what started in 1935 are now overwhelming as a result of a mere 33 pages of unconstitutional legislation.  If Congress only had stuck with the framer’s concept of a limited federal government, that is, without a federal government run insurance program, we would not be in this mess now.

Let’s look at this issue at the personal level to understand the problem in simple terms.  Commonly understood is that if somebody took your money with the intent to deprive you of said monies, this act would called theft.  It is a crime.  Now comes Congress persistently collecting taxes for one thing, then “borrowing” the money to spend it on another thing, and putting forth no plan to repay the “borrowed” monies.  Did Congress steal the “surplus” money from the Social Security Trust Fund? It certainly looks like it.

How can we solve the problem?

The first problem to solve is that Congress needs to stop stealing the “surplus” money from the Social Security Trust Fund and start putting back what it “borrowed.” As Will Rogers once said: “If you find yourself in a hole, stop digging. ”

The second problem to solve is cash flow.  When the “baby boomers” reach retirement age, the Social Security Trust Fund is projected to remain insufficient indefinably to satisfy the level of benefit payments compared to a smaller number of projected wage earners paying into it.  The only available long-term remedy is for Congress to either vote to raise Social Security Act taxes, or diminish Social Security Act benefits, or both.

The third problem to solve is the lack of personal and fiduciary responsibility.  As Alexander Tyler said in 1787: “A democracy cannot exist as a permanent form of government.  It can only exist until the voters discover that they can vote themselves largesse from the public treasury.  From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. ”

During the eight years from January 20, 1993 to January 20, 2001, the total public debt outstanding went from $4.1 trillion to $5.7 trillion for an increase of $1.6 trillion.  In the next eight years, it increased by $4.9 trillion to $10.6 trillion.  Today, less than four years later, it has increased by $5.3 trillion to $15.9 trillion.  Congress has not enacted a federal budget each year, as required by law, for the last 1,200 days.  The Senate majority leader has not allowed the budget from the House come to the Senate floor for a vote for three years.  The President’s two budgets for fiscal 2011 and 2012 were both unanimously rejected, respectively, in the Senate by 0-97, and the next year in the house of representatives by 0-414 and by the Senate 0-99.  None of the President’s four budgets included a plan to save Social Security.  There is no budget approved for the next fiscal year.  Why do we have this problem? The answer is simple.  Congress and the President embrace relentless deficit spending and they see themselves as responsible fiduciary actors.  Conversely, the Republic cannot continue to exist by “borrowing” 40 cents of every dollar it spends.  The fact is that we cannot spend our way out of debt!

Let’s set aside the details and get down to basic logic.  Congress doesn’t want a balanced budget.  If Congress wanted a balanced budget, Congress could simply take a vote to make it so.  Since Congress doesn’t want a balanced budget, “We the People” need to force the federal budget to be balanced.  Such will then force Congress every year to vote on what to fund, what not to fund, or to fund what is left over by raising taxes.  By these votes, the people will have a better measure to determine who in Congress is fiscally responsible, or not.  How do we make this happen? Start work on “Change” with a Constitutional amendment, pursuant to Article V of the Constitution, which requires the federal budget to be balanced.  After reading the foregoing story, if you are convinced that we need to act now – call your Senator and Member of the House – make them do it.

On January 20, 1961, John F.  Kennedy said “And so, my fellow Americans: ask not what your country can do for you – ask what you can do for your country.” Accordingly, “We the People” need to put the country first and stop voting for people who vote for deficit spending.  Let’s vote for candidates who have read, understand, and will abide by the Constitution and the oath to defend it.  If not, we eventually will be left with Alexander Tyler proven right once again, as governments before us have fallen for the same reason.

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