Social Security as Explained by Peter Schiff

So recently I've been reading this book called "The Real Crash" by Peter Schiff. It's one of the many economics titles I've read recently that is full of all sorts of gloom and doom about where are country will be financially in the coming years. It also has solutions (like most of the other books), too. 

I just read a part of it about Social Security that I wanted to share. Check it out. (Pages 158-160.)


     Many people do not realize that Social Security was actually declared unconstitutional by the First Circuit Court of Appeals back in 1937. In two related cases, Davis v. Boston & Mane R. Co. (89F.2d 368) and Davis v. Edison Electric Illuminating Co. of Boston et al. (89 F.2d 393), the Court ruled the Social Security Act unconstitutional. According to the court, the act, which contained numerous titles establishing benefits for the aged, unemployed, and dependent children, and imposed two new taxes, an excise tax on employers and a special income tax on employees, was unconstitutional on a variety of grounds.  

     One in particular was that the Social Security Act violated the "general welfare" clause of the Constitution, in that Social Security taxes were paid by some for the specific benefit of others. In so doing, the Act did not promote the general welfare of all, but the specific welfare of some.     To counter this claim, the government argued that the tax and benefit provisions of the Social Security Act were in no way related. The taxes were true taxes, paid unrestricted into the U.S. Treasury for the general support of government. The government claimed that Social Security taxes were enacted for the sole purpose of raising revenue and were not earmarked for any particular purpose.  

     Actually, if you look carefully at the formula used to calculate Social Security benefits, you'll see that benefits are determined not by the amount you pay in taxes-as an insurance plan would-but by how much you earn in wages. So in truth, Social Security was two separate programs-one a determined benefit pension and the other a payroll tax (excise tax on employers, income tax on employees)-that coincidentally just happened to be passed at the same time and share the same name.     This was the exact opposite of what the government was telling the public, and the First Circuit Court saw right through the ploy. It correctly observed, "Congress has not an unlimited power of taxation; but it is limited to specific objects-the payment of the public debts, and the providing for the common defense and general welfare. A tax, therefore, laid by Congress for neither of these objects, would be unconstitutional, as an excess of it legitimate authority.

The court went on to state:      

     A tax, in the general understanding of the term, and as used in the Constitution, signifies and exaction for the support of government. The word has never been thought to connote the expropriation of money from one group for the benefit of another. The exaction cannot be wrested out of its setting, denominated an excise for raising revenue and legalized by ignoring its purpose as a mere instrument for bringing about a desired end. To do this would be to shut our eyes to what all others than we can see and understand. 

It further observed: 

     If the act is carried out as planned by Congress....it amounts, in effect, to taking the property of every employer for the benefit of a certain class of employees. The entire plan, viewed as a whole, is an attempt to do indirectly what Congress cannot do directly, and to assume national control over a subject clearly within the jurisdiction of the state. 

The Court also remarked: 

     The Constitution, in all its provisions, looks to an indestructible Union, composed of indestructible states. Every journey to a forbidden end begins with a first step; and the danger of such a step by the federal government in the direction of taking over the powers of the states is that the end of the journey may find the states so despoiled of their powers, or what may amount to the same thing-so relieved of the responsibilities which possession of the powers necessarily enjoins, as to reduce them to little more than geographical subdivision of the national domain. It is safe to say that it, when the Constitution was under consideration, it had been thought that any such danger lurked behind its plain words, it never would have been ratified. 

The ruling looked prophetic in this section: 

     That this amounts to coercion of the states and control by Congress of a matter clearly within the province of the states can not be denied. If valid, it marks the end of responsible state government in any field in which the Unites States chooses to take control by the use of its taxing power. If the United States can take control of unemployment insurance and old age assistance by the coercive use of taxation, it can equally take control of education and local health conditions by levying a heavy tax and remitting it in the states which conform their educational system or their health laws to the dictates of the federal board 

.
It's amazing how right they were.

Food for thought. Pick up Schiff's book and have a read for yourself.