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Social Security ~ Feast Or Famine?

Updated on August 2, 2013
FDR signs Social Security into law.
FDR signs Social Security into law.

Facts Don't Lie ...

Is today's Social Security our society's solution or burden?

In living, as in sports, “the numbers don’t lie.” With Social Security, the facts are the facts. Facts don’t have opinions. They are neither slanted Left or Right. They affect all of America.

The Social Security Act was signed into law on August 14, 1935, under President Franklin Delano Roosevelt, a Democrat. To the voting public of that time, the offer was a solution to the dangers of old age, poverty, unemployment, and the burdens of widows and fatherless children. In reality, however, it was an insurance tax -- a part of FDR’s overall New Deal, which put the Democrats in control of Congress and the office of the President for seven out of nine terms from 1933-1969.

Social Security also has had far-reaching effects upon America’s economic condition since its inception. And American workers have extended their average lifetimes well beyond what might have been envisioned in 1935.

Social Security is financed by a payroll tax on workers' wages; half paid directly by wage-earners as a payroll tax and half paid by employers. The original promise by the federal government of a mere one-percent tax on a maximum of $3,000 annual income, matched equally by wage earners and employers for a total of two percent, has bloomed to 6.20 percent from each, based on the larger gross wage amount of up to $110,100 of annual income.

Wilson addresses Congress after Income Tax Amendment passed.
Wilson addresses Congress after Income Tax Amendment passed. | Source

16th Amendment is Income Tax

Similarly, the 16th Amendment—the income tax amendment—had been imposed into law as part of the Tariff Act of 1913 and ratified on February 25, 1913, also signed by a Democrat, President Woodrow Wilson, on October 3, 1913. At that time, Democrats controlled both houses in Congress, the House and Senate, for the first time in over 18 years. Couples earning more than $4,000, and single persons earning $3,000 or more, were subject to a one-percent, federal income tax. The measure also set up a progressive tax structure, meaning that higher-income wage earners were required by law to pay more tax at progressively higher rates up to seven percent. In truth, the law killed initiative: the more one produced, the more he was taxed.

The Tariff Act imposed a tax on exchanged goods and services. The resultant rising tariffs brought complaints from individuals, companies and even federal officials. The traffic of trade can only bear so much taxation, yet the likelihood of war in Europe portended a greater cost for defending our nation... was the purported reason that justified the change. In other words, the threat of war, not war itself, swayed public and corporate opinion. The fix was in.

In only a few years, the new federal income tax became the federal government’s chief source of revenue, well beyond the continued tariffs, which were never rescinded.

Still, less than one percent of the population initially paid any federal income tax. On the other hand, the Democrat-controlled government had a voracious appetite, once it had more taxes flowing into its coffers. Income tax and the new tariffs had merely laid down a precedent legal pathway to other intrusions that went way beyond taxes.

pre-1980 card "NOT FOR IDENTIFICATION" | Source

Non-ID Card

That Social Security card in your wallet and purse up until the 1980s expressly stated the cards were not to be used for identification purposes. Convenience being a hallmark of Congress’ mode of operation, once the U.S. population for the most part had a numbered card the message, NOT FOR IDENTIFICATION, was removed from newly issued cards, which brings us back to Franklin Roosevelt.

Roosevelt had introduced the voluntary Federal Insurance Contributions Act (FICA) program that eventually, in 1965, expanded to include the social insurance plan known as Medicare. Under this option, having to have a Social Security card is all but a mandatory requirement for identification before anyone can participate with its services.

Roosevelt and his Democrat Congress held sway over politics and public opinion, though they would not keep a whole list of promises (perhaps, never intending to) made at the onset:

1. Participation in the Program would be completely voluntary;

2. Participants would only have to pay one percent of the first $1,400 of their annual incomes into the program;

3. The money participants put into the Program would be deductible from their income for tax purposes each year;

4. The money would be put into the independent “Trust Fund” rather than into the General Operating Fund — only be used to fund the Social Security Retirement Program, and no other Government program. Under President Lyndon B.Johnson, another Democrat, the money was moved to The General Operating Fund and spent.

Roosevelt and his Congress also promised:

6. That the annuity payments to retirees would never be taxed as income. President William Jefferson Clinton and his Vice President Al Gore pushed through legislation that henceforth allowed up to 85 percent of Social Security income to be subject to federal income tax.

President Lyndon Johnson signs Medicare into law in 1965.
President Lyndon Johnson signs Medicare into law in 1965.

The Social Security Act returned benefits to retirees and the unemployed; and a lump-sum benefit was paid to survivors at death. The act also disbursed funds “... enabling the several States to make more adequate provision for aged persons, blind persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws; to establish a Social Security Board; to raise revenue; and for other purposes.” (emphases mine)

The states’ Constitutional powers were upheld, and they were clearly handed the funds to preside over specified areas which included the “public health.” However, the broad wording of the last phrase — “and for other purposes” — allowed for later widespread corruption of the limited, intended use of revenues collected under the Act. These wordings and enactments have great relevance today, when we consider both the newly enacted Patient Protection and Affordable Care Act, colloquially known as “Obamacare,” and the repeated diversions of Social Security revenues to other programs by both Democrat and Republican Congresses, which placed the entire Social Security system on thin ice.

The potential for a collusive co-existence between universal healthcare and the ongoing corruptive juggling of funds was set in motion by the actual wording of the Social Security Act back in 1935.

Opponents to the proposed Social Security Act opposed it openly for more than one reason. In a Senate Finance Committee hearing, one Senator asked Secretary of Labor Frances Perkins, “Isn't this socialism?” When she replied that it was not -- merely her opinion, he asked, “Isn't this a teeny-weeny bit of socialism?”

(One can understand the basis for his emotional query: a mere 18 years earlier, Russia’s bloody Leninist revolution had ushered in the new Soviet Socialist Republic, which by 1935 had rattled more than a few neighboring countries.)

At its inception, Social Security excluded the majority of women and minorities from unemployment insurance benefits and old age pensions. Employment definitions at the time typically included white male categories and patterns only.

The provisions of Social Security continue to remain in flux — again that pesky phrase “and other purposes” comes to mind. They have shifted in response to economic worry, changed gender roles in the workplace and minority standings, though more heavily to the benefit of women than minority groups. In other words, as the political power structure publicly genuflected in front of the altar of public awareness and its ever-changing tastes for equality, Congress moved Social Security inexorably toward universal coverage ... and obligingly upped its tax rates at the same time. All well and good, except that privately, Congressional officials were raiding Social Security coffers, leaving behind bonds as I.O.U.’s that remain unpaid today.

Public Trust Betrayed

In other words, the public trust of 1935 has been betrayed on numerous occasions in the name of special interests which appear and disappear like grains of sand on a beach, besieged by any which way the wind blows. The tax burdens of Social Security and Medicare that are tied to every wage-earner paycheck since 1935 and 1965, respectively, have continued to rise under Democrat-controlled Congresses.

Again, the facts cannot lie; to wit:

1. Democrats eliminated the income tax deduction for FICA withholding and, with Vice President Al Gore casting the “tie-breaking” deciding vote as President of the Senate, started Social Security annuity taxation;

2. Democrats decided to give annuity payments to illegal immigrants. President Jimmy Carter’s Democrat cronies doled out Social Security payments to immigrants at age 65, even though they never paid a dime into the program.

After eroding the original contract promises of the past — of course, in the name of “equality” and “public concern,” which concepts would be hard to disagree with — Democrats today are trying to deflect public attention away from the facts by labeling the top wage earners guilty of not paying their “fair share” of the tax burden. But that is an old accusation too simplistic to explain the phenomenon of income inequality.

Janet L. Yellen, President and CEO of the Federal Reserve Bank of San Francisco, announced to the Center for the Study of Democracy, University of California, Irvine on November 6, 2006, “...These technologies have changed what workers need to know to do their work, and, indeed, they have changed the nature of the work itself. As a result, there is a greater demand for, and a greater payoff to, workers who have the conceptual and organizational skills to use these technologies most effectively. The necessary skills are more prevalent among college educated workers, so they are in greater demand.” She adds that globalization is a factor, “Since the U.S. tends to export goods that use skilled labor intensively and to import goods that use less-skilled labor intensively increased trade has, on balance, raised the demand for skilled labor and reduced the demand for less-skilled workers in this country. In the 1980s, the impact of globalization was especially pronounced for previously well-paid manufacturing jobs available to U.S. workers possessing a high school degree or less. The result has been job losses and excess supply of low-skilled workers, a situation that has been intensified by an influx of immigrants with less than a high school education.”

Rich pay more, far more already.
Rich pay more, far more already. | Source

POLL: Tax Reform Choices

Which would help America's financial future more?

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Reserves Savings Grow Over Time!
Reserves Savings Grow Over Time! | Source

The Future Is Now

Where Social Security goes from here remains to be seen. Based on past records and human emotion being what it is, it is a program that will continue forever. However, will it ever be solvent again? Will the raided funds ever be returned to its treasure chests? Will it be sustainable, now that the general population is living longer lifetimes?

For that matter, where will taxation go from here? Tax reform has been bandied about as another "needed and wanted," but who is willing to do what needs to be done? If FDR thought "outside of the box" with Social Security in the 1930's, maybe today's leaders need to approach today's world with the same fervor for reform.

None of the answers to the questions are pretty. If we rely on historical facts, Congress will take the same old approach and kick the problem down the road, not confronting it and make the next generation sort it out and pay the price.

Perhaps, the only way out is to educate ourselves to the benefits of reserves savings accounts and compound interest rates over time.

But if a national savings habit must be undertaken privately, then the government must resolve to let the people keep more of its hard-earned income by eliminating income-based taxation. Letting America keep 100 percent of its paychecks, will lessen the burden of setting aside savings as reserves which can accumulate compound interest gains and, thereby, eliminate the need for a vast and sprawling Social Security network, which, after all, was only another insurance tax at the start.

While it might take a whole generation of nationwide savings accumulated by a newly educated and self-reliant populace to no longer need the current Social Security program, such a self-enforced responsibility may be our only answer that tastes good enough to swallow.

As the bell that tolls insolvency is not for itself, but for you and me, the time to act decisively is now.

Fair Tax Benefits

No more IRS; 100% of your paycheck; more savings.
No more IRS; 100% of your paycheck; more savings. | Source


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