The Constitution Changed Without a Vote - The
Social Security Act of 1935
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
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 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 be 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
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
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.