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| The Joint Economics Committee of Congress — The Blind Leading The Blind
Turning back once again to the May 27th hearing before the Congressional Joint Economics Committee of Congress (before which Mr. Wallis made the remarks shown on page 131), the two day hearing was opened by the following statement of then Committee chairman, the late Senator Hubert Humphrey: opening statesient of chairman hcmpiiret Chairman HuMi'iiRRr. Mr. Card well, and your associate?, thank you very much for your patience. We have a rather rugged day hi the Senate today. I was on my way over to see you and all at once the bell rang and we returned to our first line of duty. This morning, the Joint Economic Committee begins 2 dnys of hearings on the, problems of the- social security system. Of course the concern over the social security system is everywhere, and people are asking a number of questions about the solvency of the system and its continuity. We hope to discuss these problems in a clear, objective fashion and begin to determine the best course for Congress to pursue over the coining years. We want to assure tlie financial soundness of this crucial social insurance program. We know full well that tliis will not be «n easy task. But'there arc numerous problems facing onr social insurance system, and there is disagreement over the seriousness of some of these problems. Note here that the government recognized that "concern over the Social Security system is everywhere, and people are asking a number of questions about the solvency of the system and its continuity". Well, the situation continued to get worse following these hearings which proves that all such hearings are a waste of taxpayer's money! Martin Feldstein's Remarks to the Committee Among the more interesting observations made that day to the Committee were those of Martin Feld-stein who now serves as President Reagan's Chairman of the Council of Economic Advisors. He stated: Although there has been much concern about the social security pro-, gram's unfunded liability of more than $2 trillion, there is no ecohomia reasori why social security should ever ikj bankrupt. Current beneficiaries and covered workers are expected to receive over $2 trillion in benefits more than they are expected to pay in future taxes. If social security were a private pension plan, it would require current assets of more than $2 trillion to lie financially solvent, i.e., to guarantee its ability to meet its future obligations. Since the social security program has a trust fund of only $44 billion or some 2 percent of its obligations, social security is bankrupt by the conventional standards used to determine the actuarial soundness of private pension programs. This analogy of social security to private pension programs is, however, totally misleading. A private pension program must have sufficient assets that any future contributions will be made. In contrast, the Government can continue to compel future generations of workers to pay social security taxes. The future tax rates can be set so that tax revenues are sufficient to meet the claims of the beneficiaries. The Government's power to tax is its power to meet the obligations of social security to future beneficiaries. As long as the voters support the social security system, it will bo able to pay the benefits that it promises. It is therefore, very importfint to prevent an increase in the tax rate or other changes that will undermine public support of social security's primary purpose: Providing basic income-related annuities that individuals otherwise would not or could not buy for themselves. Maintaining political support will become even more difficult because of the problem to which I now turn. There are, of course, a number of misconceptions in this short excerpt from Feldstein's lengthy testimony. First of all, he states that current beneficiaries and covered workers are expected to receive over "... $2 trillion in benefits more than they are expected to pay in future taxes". Please tell me, Mr. Feldstein, just who is going to pay the extra "$2 trillion" (in real purchasing power) more than was paid in? The taxpayers of France... or England ... or the Soviet Union? How is this financial hat trick to be pulled off? How are Americans going to (collectively) take $2 trillion more out of a program than they (collectively) put into it — without any capital creation from which such payments will be generated? In case you're wondering, Senator Proxmire (as will soon be shown) supplied the answer! But when Feldstein admits that Social Security would need more than $2 trillion to be currently solvent (four times as much as the then reported national debt), and that it only had 2% of its obligations,13 he is obviously admitting that Social Security even then was way beyond salvaging! Note Feldstein's admission that "... Social Security is bankrupt by the conventional standards used to determine the actual soundness of private pension programs...". But that was the basis upon which the system was sold to the nation and the basis upon which it was held to be constitutional by the Supreme Court. And, if the plan is bankrupt by "conventional standards", then on what standards is it solvent? Feldstein's answer is that it is solvent because "the government can continue to compel future generations of workers to pay Social Security taxes". MR. FELDSTEIN, THIS BOOK PROVES YOU ARE WRONG AGAIN!! Proxmire's Answer to Feldstein's Riddle I now offer the piece de resistance—proof that not only is Social Security a fraud that can wreak havoc on the nation — but that politicians cannot be trusted to administer this or any other financial program. At these same hearings, Senator Proxmire was questioning James P. Cardwell, the Commissioner of Social Security, regarding the prospect of "default" which had been raised by Senator Percy. Senator Prox- 13 By 1982 the OASI had 0% of its obligations and would need over $5 trillion to be "currently solvent", or five times the reported national debt! mire noted that betweeen 32 and 34 million people were drawing Social Security benefits and then went on to add: "Almost all of them, or many of them, are voters. In my State, I figure there are 600,000 voters that recieve Social Security. Can you imagine a Senator or Congressman under those circumstances saying, we are going to repudiate that high a proportion of the electorate? No. Furthermore, we have the capacity under the Constitution, the Congress does, to coin money, as well as to regulate the value thereof. And therefore we have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid." (emphasis added) To which Commissioner Cardwell replied, "I tend to agree." So here we have Senator Proxmire stating that while politicians might be reluctant (due to political considerations) to repudiate Social Security benefits honestly and openly, they would have no compunction about doing so underhandedly and surreptitiously—by the use of printing press money. The apparent answer to Feldstein's riddle is that the printing press is expected to supply the extra $2 trillion! Now mind you, Senator Proxmire was head of the Senate Banking, Housing and Urban Affairs Committee. Somebody should have, therefore, explained to him what the consequences of Social Security checks being "not worth anything" would be. Maybe the good Senator didn't realize that if Social Security checks weren't "worth anything", neither are government bonds, savings accounts, and all other fixed dollar assets. What then would the social, economic and political climate of this country be if all currency and fixed dollar assets suddenly weren't "worth anything"? Yet, note with what nonchalance Senator Prox-mire (and, indeed, the entire Committee) accepted this unspeakable calamity. In addition, somebody should also have pointed out to Proxmire that "printing" money is not exactly the same as "coining" it, so he was slightly confused concerning the "capacity" he thought he and Congress had "under the Constitution". Incidentally, Proxmire's statement and the manner in which it was accepted by the Joint "Economics" Committee, gives you some idea of the real intelligence level of The United States Congress and that of its committees. "Compact" Between Generations Figure 45 is an excerpt from a current Social Security pamphlet. Note that the reader is informed that Social Security was "conceived as a compact between generations". Such a statement is a bold-faced lie. No such "compact" was ever suggested or hinted at by those proposing Social Security, and it certainly was not in the minds of the public when it accepted Social Security. If a "compact" ever existed, how did earlier generations (who received generous Social Security benefits) discharge their "responsibility" under this "compact"? By agreeing to accept benefits out of all proportion to what they paid? The government is obviously trying to con and intimidate younger Americans into believing that they are bound by some kind of "compact" under which they are (and will be) forced to deliver on the irresponsible FIGURE 45 Your parents, perhaps, are among those whose sense of digni'v and independence is assured through monthly tax-free, inflation-proof checks, and whose health care needs are paid for, in part, by Medicare. Medicare helps relieve the families of older j beneficiaries of potentially overwhelming / financial responsibilities. r Conceived as a compact between generations and between the people and their Government to meet the basic income needs of Americans, social security provides a financial foundation on which to build other savings for future income. This commitment is a "pay-as-you-go" system, making a direct transfer of money from workers to those who are retired or disabled, and to the families of workers who are disabled or have died. Your benefits will be provided from the taxes of future workers. Today's taxes are used for today's needs. Ninety-eight cents of every social $.9?« security tax dollar is paid out in benefits, y The strength of the social security system is that it is able to adjust to changing social patterns and economic conditions. It is reviewed constantly by Congress and the Administration and altered to adjust to changing conditions. Sullicient revenues arc assured by examining economic projections and scheduling taxes which will raise enough revenues to cover the projections. U.S. Department of Health, Education, and Welfare, Social Security Administration. HEW Publication No. (SSA) 79-10053, August 1979 promises made over the last 47 years by vote-seeking politicians. Older Americans foolishly believed that their benefits would come out of their own "contributions". Since, admittedly, these "contributions" are gone — voila, we now have a "compact"! More Official Admissions On November 3, 1976 an article written by the then Secretary of the Treasury, William Simon, appeared in The Wall Street Journal and opened as follows: (emphasis added) "As chief financial officer of the U.S. government, I am required to assess the soundness of the Social Security system. My assessment covers both the system's currently financial position, and its ongoing visibility. I have been shocked by what I have learned. Even though I am sure there is no immediate danger, the future prospects of the system as we know it are grim..." Quoting further, he said: "What has gone wrong? And why is the problem expected to get so much worse in the future? Since 1935, when the Social Security Act became law, the government has tinkered with the program. Bit by bit the soundness of its financing has been undermined. It was originally understood, at least in the way the program was presented to the public, that the premiums contributed (Social Security tax payments) would be accumulated in a reserve account, just like the pension fund of a business firm or labor union. This fund was supposed to grow steadily, earning interest, until it reached an amount large enough to meet its commitments. The contributors themselves would own the assets in the fund, for which the government would serve merely as trustee. The members' economic security in old age would be fully protected by this ownership. They would never have to depend on anyone else's charity for their livelihood." A Lifeline Needed Today, Social Security actually operates in a very different fashion. The reserve account (later relabeled the Trust Fund) has not been allowed to grow to more than a fraction of the required size. Instead, the government has used much of the money contributed by wage earners to pay increased benefits to people whose contributions were not enough to warrant those benefits. The government has also failed to raise taxes commen-surately with benefit increases. As a result, the Trust Fund is so meager that it is barely enough to keep the program going for six months ..." and: "There is really nothing we can do about the insufficiency of the Trust Fund. It is far too late to rebuild it to the required size. For that an astonishing amount of money would be needed-by official estimates, more than two full years of our entire GNP! That is not practical, and it would not be desirable even if it were practical. Our past mistakes are behind us, and all we can do is to avoid repeating them in the future. In any event, today's contributors have not been building a fund at all. The taxes they are paying into Social Security are being merely handed over as benefits to other people. In turn, when the current workers retire, they will be completely dependent upon future workers for their benefits. Their position is even more vulnerable should anything go wrong with this delicate balance. Each generation has the power through the elective process to refuse to pay. If the next generation were to refuse to pay the retired population would be helpless.. ." and finally: ".. .To put the point bluntly. I can see no way in which the government's current promises can be kept. For the problem is even worse than official projections suggest..." (emphasis added throughout) At the time this article was written Simon (as Secretary of the Treasury and Chief Trustee of the Social Security "trust fund") was in as good a position as anyone to accurately evaluate Social Security. His appraisal, of course, was entirely accurate when he stated that he could "see no way that the government promises could be kept". This admission, of course, branded those promises as irresponsible and fraudulent. Despite all this, however, Simon's article was not entirely forthright since he devoted the last quarter of it to suggesting possible ways the program could be salvaged. True, he suggested that such changes "will not be popular", but he also suggested that some changes might salvage the plan when it was obvious that it is not salvageable at all. Maybe it was too much to expect that the then Secretary of the Treasury could blow the whistle completely; but his remarks should have been enough to expose the program as one of the biggest political and bureaucratic scandals in history! When Simon admitted that Social Security's problems were "even worse than official projections suggest", he was backing up Wallis' admission (see page 131) that the public's misunderstanding of Social Security was "deliberately cultivated" by the government. This deception continues to this very day. The point is that all the material included in this chapter establishes beyond a doubt that Social Security (as it is currently operated) is not at all like the program originally presented to the nation in 1935 or that was held constitutional by the Supreme Court. As a matter of fact, based upon the government's own admissions, it is clear that Social Security (as currently operated) is openly and admittedly unconstitutional! In addition, a plan that has funds to last only 12 days (after 47 years of operation), and that admittedly may be paid off with checks that "may not be worth anything", is obviously not a plan that can be counted on to save anyone from the "rigors of the poor house"; but may, itself, be the very instrument that insures that many will get there!! SUMMARIZING THE POINTS COVERED IN CHAPTER 7 1. The fact that there have been numerous government studies of Social Security as well as several standing committees (including a trustee's committee) charged with the responsibility of monitoring Social Security did not prevent the OASI account from being dead broke in 1982. This proves that it is foolish to believe in or rely on the Federal government for anything it says or does. 2. The government now openly admits that there is no Social Security "reserve" and Social Security payments are made on a pay-as-you-go basis (the same basis upon which a chain letter or Ponzi scheme operates). 3. All government "trust funds" composed of government bonds (allegedly to support various government-backed programs) are an illusion and can be of no financial help in supporting those programs they allegedly back. 4. Government "guarantees" are backed by nothing more than the government's willingness to print money which, in the final analysis, wipes out the value of all that is "guaranteed". 8 Of Taxes And Trust Funds When the government argued the legality of Social Security in 1938 (as explained in Chapter 5), it maintained that Social Security taxes were to be received by the Treasury as regular tax collections and were not earmarked for any purpose whatsoever. Yet the Act itself provided for the creation of a "trust fund", supposedly to guarantee the benefits promised. Figure 46 is a reproduction of Title 2, Section 201 that theoretically established this "fund". Not only did the public believe that Social Security was to be secured by a gigantic "reserve" (as explained in Chapter 6), but the law also provided for such a "reserve" and further provided that such a reserve was to be maintained on the basis of "accepted actuarial principles". The Supreme Court relied on this provision in the law when it held Social Security constitutional as the following excerpt from Helvering vs. Davis makes clear: "The first section of this title creates an account in the United States Treasury to be known as the Old-Age Reserve Account.' Para. 201. No present approp- nation, however, is made to that account. All that the statute does is to authorize appropriations annually thereafter beginning with the fiscal year which ends June 30, 1937. How large they shall be is not known in advance. The 'amount sufficient as an annual premium' to provide for the required payments is 'to be determined on a reserve basis in accordance with accepted actuarial principles and based upon such tables of mortality as the Secretary of the Treasury shall from time to time adopt, and upon an interest rate of 3 per centum per annum compounded annually.' Para. 201(a). Not a dollar goes into the Account by force of the challenged Act alone, unaided by acts to follow." (emphasis added) Note that the constitutionality of Social Security was based upon the Court's belief that an actuarially sound "reserve" was to be created in order to pay the benefits established by the Act. See how the court accepted such actuarial terms as "annual premiums", "reserves", "actuarial principles", "tables of mortality", "investment yield", etc. Obviously the court thought it was dealing with a legitimate pension plan; but such terms are meaningless when applied to "Social Security". The Court, however, did not understand this and, |