The Social Security Story

10 comments

Posted on 16th November 2012 by Novista in Politics |Social Issues

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Where better to start than with the horse’s mouth … so to speak.

SSA site

The 1936 Government Pamphlet on Social Security

To Employees of Industrial and Business Establishments

FACTORIES-SHOPS-MINES-MILLS-STORES-OFFICES AND OTHER PLACES OF BUSINESS

Beginning November 24, 1936, the United States Government will set up a Social Security account for you, if you are eligible. To understand your obligations, rights, and benefits you should read the following general explanation.

THERE is now a law in this country which will give about 26 million working people something to live on when they are old and have stopped working. This law, which gives other benefits, too, was passed last year by Congress and is called the Social Security Act.

Under this law the United States Government will send checks every month to retired workers, both men and women, after they have passed their 65th birthday and have met a few simple requirements of the law.

WHAT THIS MEANS TO YOU

THIS means that if you work in some factory, shop, mine, mill, store, office, or almost any other kind of business or industry, you will be earning benefits that will come to you later on. From the time you are 65 years old, or more, and stop working, you will get a Government check every month of your life, if you have worked some time (one day or more) in each of any 5 years after 1936, and have earned during that time a total of $2,000 or more.

The checks will come to you as a right. You will get them regardless of the amount of property or income you may have. They are what the law calls “Old-Age Benefits” under the Social Security Act. If you prefer to keep on working after you are 65, the monthly checks from the Government will begin coming to you whenever you decide to retire.

The Amount of Your Checks

How much you will get when you are 65 years old will depend entirely on how much you earn in wages from your industrial or business employment between January 1, 1937, and your 65th birthday. A man or woman who gets good wages and has a steady job most of his or her life can get as much as $85 a month for life after age 65. The least you can get in monthly benefits, if you come under the law at all, is $10 a month.

IF YOU ARE NOW YOUNG

Suppose you are making $25 a week and are young enough now to go on working for 40 years. If you make an average of $25 a week for 52 weeks in each year, your check when you are 65 years old will be $53 a month for the rest of your life. If you make $50 a week, you will get $74.50 a month for the rest of your life after age 65.

IF YOU ARE NOW MIDDLE-AGED

But suppose you are about 55 years old now and have 10 years to work before you are 65. Suppose you make only $15 a week on the average. When you stop work at age 65 you will get a check for $19 each month for the rest of your life. If you make $25 a week for 10 years, you will get a little over $23 a month from the Government as long as you live after your 65th birthday.

IF YOU SHOULD DIE BEFORE AGE 65

If you should die before you begin to get your monthly checks, your family will get a payment in cash, amounting to 3.5 cents on every dollar of wages you have earned after 1936. If, for example, you should die at age 64, and if you had earned $25 a week for 10 years before that time, your family would receive $455. On tile other hand, if you have not worked enough to get the regular monthly checks by the time you are 65, you will get a lump sum, or if you should die your family or estate would get a lump sum. The amount of this, too, will be 3.5 cents on every dollar of wages you earn after 1936.

TAXES

THE same law that provides these old-age benefits for you and other workers, sets up certain new taxes to be paid to the United States Government. These taxes are collected by the Bureau of Internal Revenue of the U. S. Treasury Department, and inquiries concerning them should be addressed to that bureau. The law also creates an “Old-Age Reserve Account” in the United States Treasury, and Congress is authorized to put into this reserve account each year enough money to provide for the monthly payments you and other workers are to receive when you are 65.

YOUR PART OF THE TAX

The taxes called for in this law will be paid both by your employer and by you. For the next 3 years you will pay maybe 15 cents a week, maybe 25 cents a week, maybe 30 cents or more, according to what you earn. That is to say, during the next 3 years, beginning January 1, 1937, you will pay 1 cent for every dollar you earn, and at the same time your employer will pay 1 cent for every dollar you earn, up to $3,000 a year. Twenty-six million other workers and their employers will be paying at the same time.

After the first 3 year–that is to say, beginning in 1940–you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. This will be the tax for 3 years, and then, beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. After that, you and your employer will each pay half a cent more for 3 years, and finally, beginning in 1949, twelve years from now, you 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.

YOUR EMPLOYER’S PART OF THE TAX

The Government will collect both of these taxes from your employer. Your part of the tax will be taken out of your pay. The Government will collect from your employer an equal amount out of his own funds.

This will go on just the same if you go to work for another employer, so long as you work in a factory, shop, mine, mill, office, store, or other such place of business. (Wages earned in employment as farm workers, domestic workers in private homes, Government workers, and on a few other kinds of jobs are not subject to this tax.)

OLD-AGE RESERVE ACCOUNT

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. This means that 3 cents will be added to every dollar in the fund each year.

Maybe your employer has an old-age pension plan for his employees. If so, the Government’s old-age benefit plan will not have to interfere with that. The employer can fit his plan into the Government plan.

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.


Note.–”Wages” and “employment” wherever used in the foregoing mean wages and employment as defined in the Social Security Act.

So that was the original plan.
Maybe it seemed like a good idea at the time. Optimistic? Good intentions? You know where that road leads.
In 1940, then, about 42 workers began paying for every one retiree. Yes, of course! how can you be saving for yourself when the scheme started and began to cover those who came before you???

The first SS retiree:
The first monthly payment was issued on January 31, 1940 to Ida May Fuller of Ludlow, Vermont. In 1937, 1938 and 1939 she paid a total of $24.75 into the Social Security System. Her first check was for $22.54. After her second check, Fuller already had received more than she contributed over the three-year period. She lived to be 100 and collected a total of $22,888.92.
By 1950, the ratio of workers to retirees was 16 to one. Today there are less than three.
As of 2011, the Social Security trustee projects that SS benefits exceeding taxes collected.
In any case, the myth of the ‘lockbox’ is just that. The current surplus of taxes is spent by Congress. At the same time, the Treasury Dept. issues illiquid government securities to the Social Security account. An IOU.

It gets worse …
In a U.S. Supreme Court case, Helvering v. Davis (1937), the court held that Social Security is not an insurance program, saying:

“The proceeds of both (employee and employer) taxes are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.”

In 1960, the Supreme Court decreed in Flemming v. Nestor that “entitlement to Social Security benefits is not a contractual right.
Health, Education and Welfare Secretary (Arthur Sherwood) Flemming stated in his brief:
“The contribution exacted under the Social Security plan is a true tax. It is not comparable to a premium promising the payment of an annuity commencing at a designated age.”

In 1997, Paul Krugman wrote for the Boston Review:

“Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme.
“In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in.
“Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today’s young may well get less than they put in).”

Walter E. Williams, economist, quoted by Laurence Vance in 2011:

“a man reaching age 65 in the year 2000 could expect to receive $71,000 more in government transfer payments (of which the largest amount is Social Security) than he paid in taxes. But a 20-year-old man who entered the workforce in the year 2000 can expect to pay $312,000 more in taxes than he will ever receive in benefits.”

Form ssa-7005-sm-si (the summary of your lifetime SS payments) might be worth your time to check.
Given the outcome of the GFC and the case law cited above, you would be correct in having a concern about your retirement, if it is based solely on the government.
And after all that, the only thing to add is: Medicare unfunded projections are worse.
Math is hard. Cruel, even. Also it is reality.

 

(this is an excerpt from my Kindle book, “Embrace the Doom”

take note, Muck About … )

Embrace the Doom: Joseph Elkhorne: Amazon.com: Kindle Store

 

10 Comments
  1. Pirate Jo says:

    What I know about Social Security is not to rely upon it.

    16th November 2012 at 11:16 am

  2. Muck About says:

    Yah! Muck About took note of this back when he was 35 and arranged his affairs so there would no dependence on SS when he got ready to “retire”.. “Retire” to old Muck is getting tired over and over, not necessarily stopping work, just shifting that work to something Muck wants to do.

    They can cancel SS tomorrow and Old Muck About will survive just fine, short of armed insurrection by the over 65 set that gets me killed in the crossfire. There will, of course, be a run on dog food by a lot of my neighbors and within a month, the die off will start. And, as long as I have anything left, none of my neighbors will go hungry (unless they’re obese – in which case, a diet is in order!).

    As far as Medicare is concerned, we’re screwed – squared.. With Obummercare coming on like gangbusters, we will be screwed – qubed.. The whole system will implode and holistic medicine will get a big boost. The average mortality age has already peaked out and will start down a very rapid slope.

    4th Turnings are a bitch.. Especially if you’re living right in the middle of one. Maybe Old Muck will luck out and kick off this mortal coil before things get really nasty. I do feel some sense of despair for my kids, dire distress for my grandkids and have no hope for the great-grands at all.

    Name of the game: Do not count on any level of gubbermint to “fix” anything, “support” anything or provide a “safety net” under anything. You are on your own and had better make the best of it.

    MA

    16th November 2012 at 12:25 pm

  3. nof says:

    Helvering v. Davis (1937) also mentioned this: Taxes levied by the new Social Security Act under the INDIRECT TAX and GENERAL WELFARE CLAUSE are upheld as Constitutional. The tax on the employer is an indirect EXCISE TAX on the employer/employee relationship. The tax on employees is an indirect “special income tax,” which is “to be deducted from their wages and paid by employers” and “measured by wages paid [by the employer] during the calendar year.”

    So what makes it a “SPECIAL” income tax? Hint: Federal Reserve

    bonus: this is exactly why ObamaCare was said to be constitutional and a tax. Otherwise SSA and Medicare’s precedence would be unzipped

    16th November 2012 at 2:32 pm

  4. Don Levit says:

    nof:
    You are exactly correct about the TAXES. THEY ARE NOT DIRECTED TO PARTICULAR ACCOUNTS. RATHER, ALL TAXES GO INTO THE TREASURY’S GENRAL FUND (INCLUDING fica TAXES) AND become indistinguishable from other monies.
    welfare, and not for specific programs or specific beneficiaries owning “property rights” in their taxes.
    Don Levit

    16th November 2012 at 4:08 pm

  5. Don Levit says:

    To correct my last post; The taxes are for the general welfare, and not for specific programs or benficiaries, who can claim they own “property rights” due to their taxes paid.
    Don Levit

    16th November 2012 at 4:10 pm

  6. Novista says:

    PJ

    The problem is: most people do NOT know. What’s really weird is, many people do not trust rubbery figures from the govmint, CPI, GDP, unemployment yet they magically believe SS is their right and they will get what’s coming to them. The reality is, they will — good and hard.

    I would be very happy if this info was emailed to all those fwd: messages from people with the “I paid in all my life and … ”

    What prompted me to write it was exactly a fwd: from someone who should have known better but didn’t. So, the original lie and the subsequent interpretations is all the reality they should need. Can’t boil it down any simpler than that.

    17th November 2012 at 6:07 pm

  7. napari says:

    Our government has taken/stolen 4 trillion dollars from social security to fund war etc…
    Social security may be a ponzi scheme but if our government had not taken/stolen the 4 trillion dollars SS would be solvent for another 30 years!
    Link included to back up my statement so before anyone goes off on me please check it out.
    http://foundationforfiscalreform.com/art_2009_16

    17th November 2012 at 7:50 pm

  8. Novista says:

    napari

    OK, I walked the walk, that is, I read your link. If the $4 trillion “had not been stolen” it’s still “not earmarked in any way”. Now, IANAL, but i’d say the Supremes trump the original lie.

    What say you copy my post and plant it on FFFR for discussion?

    18th November 2012 at 6:30 am

  9. Moto says:

    I saw some dumass on CSpan giving the rah rah about the safety of SS because those were were secured by US bonds.

    As far as all the people who have paid in: You sat by and let the government piss it away.

    18th November 2012 at 2:18 pm

  10. Makati1 says:

    Had the money I and my employers paid in over the 46 years I worked and had it been invested at just 3%, (the average savings interest paid over most of that time) the money in my ‘account’ today at 3% would pay much more than my SS. There would be a net balance every year. Do the math on your own account if you think I am wrong. (3% doubles the amount every 24 years)

    I do not expect to see that amount because the whole system is going to collapse along with the dollar and the economy sometime soon. I am preparing for that day. Are you?

    19th November 2012 at 10:48 pm

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