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Who Is Liable for Political Irresponsibility?

In the final analysis it boils down to this: Is the nation's current generation of producers (especially those in their twenties), who are themselves struggling with families and careers, liable for the unrealistic economic promises of past generations of irresponsible politicans? Did politicians long-gone have the right to indenture unborn generations of Americans to the ser­vice of other Americans, simply to make good on their irresponsible campaign promises?

The answer is obvious—No! And the bitter price that must now be paid for this fiscal folly must be borne by those Americans who bought the promises—not the nation's young men and women who had nothing what­ever to do with it. Americans now reaching 65 were not (at age 20) saddled with the burden of having to support a large retired, disabled, and dependent population— and today's twenty-year-old Americans are entitled to the same consideration. So, where do we go from here?

Deflating the Transfer Payments Bubble

Once the nation realizes that Social Security is defunct, it can begin to handle the consequences more intelligently. The first thing that has to be done is to institute a realistic "needs" test for future Social Secur-

ity payments. There are some citizens who might have no other source of income and who would be destitute without Social Security payments, while obviously there are others, (retired millionaires, for instance) who also receive Social Security, but who could survive without it. Between these two extremes there will be degrees of need, which must be evaluated in determin­ing the levels of Social Security payments, taking into consideration age, financial circumstances, health, and one's employment potential.

The fact that one paid Social Security taxes in the past cannot now determine the receipt of such pay­ments in the future. If it makes citizens feel any better, they should simply regard their past Social Security taxes as merely an indication of a prior higher ordinary tax rate (which is precisely what it was), while all those who are currently receiving "benefits" should regard such "benefits" as welfare checks. Thus, a taxpayer who thought he was paying a Social Security tax of 5 percent while being in a 25 percent tax bracket, was really in a 30 percent bracket and paying these taxes, so that the U.S. government could make welfare payments to many citizens who were far wealthier than the taxpayer.

Since Social Security is "financed" on the same basis as welfare, welfare standards obviously must ap­ply. Future Social Security "benefits" will have to be based on need. The country has no other alternative.

It is not necessary at this time for me to attempt to outline in detail a program for reforming Social Secur­ity. I will, however, suggest a brief outline for such a program:

1. A needs test, as I have suggested, will have to be immediately instituted.

2. The Social Security tax itself would be abo­lished and regular tax rates adjusted accordingly.

3. No Social Security recipient should be penalized because of the receipt of earned income.

4. A sliding scale of reduced future benefits should be projected over the next ten years for those otherwise eligible for current benefits. This would enable future Social Security claimants to plan their retirement more realistically. Obviously, the farther an individual is from 65, the more time he has to adjust to the phasing out of the program.

5. A target date must be established for the official termination of the entire program—say, December 31, 1987. This would allow for gradual phasing out, ena­bling and encouraging individuals to seek more de­pendable sources of support for their later years than mere political promises.

A needs test would bar Social Security "benefits" to many now receiving them. However, before such indi­viduals despair over losing their Social Security "ben­efits," they should recognize that, actually, they were not receiving any "benefits" in the first place. For ex­ample, suppose a retired widow or widower with approximately $50,000 in cash assets, such as CDs, bonds, and savings accounts, received the maximum Social Security monthly benefit of approximately $300 a month, or $3,600 a year. During 1974, the inflation­ary activities of the government (both in increasing the money supply and interfering with the production of goods) were responsible for at least an 18 percent rate of inflation (official figures of 12.2 percent notwithstand­ing). This rate of inflation would have caused a loss in this individual's liquid savings of $9,000. Therefore, the inflation generated by the government so that it could make unrealistic Social Security payments would have cost this individual $5,400. Furthermore, if the above individual had income from a private pension or

annuity of $400 monthly, or $4,800 annually, the gov­ernment, through its inflationary activities, would have reduced the value of these annuity payments by an additional $864. It should be further recognized that stock values plummeted in 1974 largely because of government economic and monetary policies and the high taxes paid by corporations. So in addition to the above dollar assets, if the individual started 1974 with stock worth $50,000, he would have suffered stock los­ses (conservatively estimated) of at least 15 percent of $7,500, as a result of unstable market conditions caused by government economic and fiscal policy. In addition, inflationary losses applied to its year-end value of another 18 percent would have yielded additional los­ses of $7,650. So this individual would have suffered inflationary tax losses of $16,650 and additional gov­ernment-related equity losses of $7,500 for a total gov­ernment-related loss of $25,014 sustained by him in order to receive $3,900 from the government. Obvious­ly, such individuals cannot afford such government "benefits"—they are too expensive. It is apparent that this person, like others who apply these same financial adjustments to their own asset portfolios, would discov­er that he is getting nothing from government in the way of real purchasing power through Social Security. So by eliminating Social Security payments, we elimin­ate nothing, while if we do not quickly eliminate such payments in an orderly fashion, they will be eliminated anyway (in my judgment, in from three to five years), in an atmosphere of financial and social chaos with reci­pients losing a good deal more than merely paper checks.

So, by simultaneously scaling sown Social Security and cutting out government and government waste, we will be restoring to the nation's retired citizens a good deal that is now being taken from them.

Much of the same reasoning will, of course, apply to persons receiving any "income payments" from the gov­ernment. Many now receiving such payments are los­ing far more because of the shrinkage in the purchasing power of their other assets than they are gaining by way of their government "pensions." So, even if they were to lose a portion or all of these promised govern­ment "benefits," they would be gaming far more than they would be losing.

In addition, and I feel it bears repeating, those who feel that they are "entitled" to government pensions must keep in mind that if all those who feel similarly "entitled" insist on pressing their claims, they will suc­ceed in forcing the financial collapse of U.S. Govern­ment, Inc., and will thereby create (for themselves and the rest of the economy) a situation where they will not only end up losing their pensions anyway, but in the process also lose their accumulated savings, the value of their private pensions, the value of their bonds, and a substantial portion of the value of their common stock.

Appendix C


Mr. Fred Hardnose ABC COMPANY Main Street Fairfax, Connecticut 00001

Dear Mr. Hardnose:

Attached please find my affidavit attesting to the fact that I have no "income" subject to tax pursuant to Section 3101 of the Internal Revenue Code (commonly referred to as "social security" tax).

I, therefore, instruct you to immediately stop withholding such taxes from my wages as of the date of this letter.


Ima Freeman Attached: Affidavit





: DATE: Feb. 1, 1984


1. The plaintiff is a resident of the town of Fairfax within the county of Plymouth and is an employee of the defendant Fred hardnose within said town.

2. The defendant is a manufacturer of buttons and employs the plaintiff and others.

3. On or about_________, 1983, the plaintiff deli­vered to the defendant the letter and supporting affida­vit (attached hereto as Exhibits A and B respectively) directing the defendant to immediately stop withhold­ing any sums of money from his/her pay for income taxes pursuant to 26 U.S.C. Section 3101 (commonly called "social security") in that the plaintiff declared he/she has no income subject to said tax. (Attach copy of letter marked "Exhibit A" and copy of Affidavit marked "Exhibit B".)

4. Yet despite the plaintiffs request and sworn dec­laration that he/she has no income subject to such tax nor has plaintiff been made liable for such tax pursuant to 26 U.S.C. Sections 6201, 6303 and 6203, the defen­dant has continued to withhold a portion of the plain­tiffs wages from him/her purportedly on behalf of such a tax.

5. There is no provision of the U.S. Internal Revenue Code which establishes a "liability" or any "require-

ment" that the plaintiff pay such tax nor is the word "income", as used in 26 U.S.C. Section 3101, defined (see U.S. vs. Bollard, 535 F2d 400, page 404).

6. The defendant Fred Hardnose, by his actions, as aforesaid, has deprived the plaintiff of his property without due process of law and without compensation in violation of the Fifth Amendment to the United States Constitution and of the Connecticut Constitu­tion, Article 1, Section 7 (freedom from unreasonable seizures) and Article 1, Section 11 (freedom from taking of private property without just compensation).

7. The defendant has withheld the sum of $_______

as of this date and by information and belief intends to continue to so withhold the money earned by the plaintiff.


1. Money damages.

2. An Order requiring the defendant to return to plaintiff funds withheld from his/her wages from the date of the receipt of notification from the plaintiff that he should stop withholding funds from plaintiffs wages together with interest thereon.

3. An Order requiring the defendant to refrain from withholding funds from plaintiffs wages pursuant to 26 U.S.C. Section 3101 until such time as plaintiff shall have notified him of a change in plaintiffs income status or until such time as he shall be notified by the

Secretary of the Treasury that the plaintiff has been duly "assessed" and "made liable" for Section 3101 "in­come taxes" pursuant to Sections 6201, 6203 and 6303 of the Internal Revenue Code.

Hereof fail not but due service and return make.

Dated at Fairfax, Connecticut this___day of

_____, 198____



Note: This is an example of a State Court complaint. It is to be used only as a sample form. The form should be adapted to meet your particular needs and the rules of your State Court. Seek advice from the clerk's office of your State Court. Information in the complaint that is underlined should be replaced with your own personal information before submission.

Appendix D

The Federal government couldn't have pulled off the Social Security caper without getting a lot of help from "experts" in the private sector. I offer two cases in point:

Paul Samuelson

Probably no one has done more to scramble the brains of American youth on the subject of economics than MIT's Professor Paul A. Samuelson.1 Apart from his being a special economics advisor to Presidents Kennedy and Johnson and winning the Nobel Prize for Economics in 1970, he authored Economics: An Intro­ductory Analysis, which has probably been used by more college students than any other economics text. So, if you've ever discussed economics with one of your college-trained sons or daughters — and if they didn't seem to make any sense whatsoever—chances are they used Samuelson's text.

For example, in his third edition (published in 1958) he states that in comparison to Social Security, "A private insurance company would have to charge tens of thousands of dollars for such generous annuities and privileges ...". (See The Biggest Con, page 181.) Samuelson apparently believes that tens of thousands of dollars of insurance benefits and privileges can be

1 See The Biggest Con, pages 233-241

produced by the Federal government out of thin air at no cost to anyone! That observation was followed by this gem: "It is one of the great advantages of a pay-as-you-go Social Security system that it rests on the general tax capacity of the nation; if hyperinflation wiped out all private insurance and savings, Social Security could, nonetheless, start all over again, none the poor­er." Start all over with what? The economy would be in a shambles! Samuelson obviously belongs to the Alice-in-Wonderland School of Economics! Even with an eco­nomic calamity in which all private savings are wiped out, Social Security recipients have nothing to worry about! If the above situation did, indeed, happen, all economic activity would come to a screeching halt.2

But, even in this situation, Samuelson believes that the government's "tax capacity" (i.e. the nation's economic health) has not changed and that Social Security's recipients are, therefore, "none the poorer". Stop shaking your head in disbelief, the man really did win a Noble Prize in Economics!

As proof that Samuelson did not seem to learn much as the years passed, I offer this quote from his February 13, 1967 column in Newsweek magazine:

"The beauty about social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in. And exceed his payments by more than ten times as much (or five times, counting in employer payments). How is this possible? It stems from the fact that the national product is growing at a compound interest and can be expected to do so for as far ahead as the eye can see. Always there are more youths than folks in a growing population. More important, with

2 In this situation, transportation would also come to a halt—since how could anyone pay their bills? Food and other necessities would not be available in our stores. One can only speculate on the rioting and pillaging that would take place as people scram­bled to get the necessities of life.

real incomes growing at some 3 percent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired." (emphasis added)

So apparently Samuelson is overjoyed that Social Security is "actuarially unsound" and believes that with­out anyone working harder and longer (and without any apparent increase in capital) we all are going to have morel He bases his amazing conclusion on his belief that the".. .national product is growing.. ."(and will continue to magically grow) ".. .at compound in­terest and can be expected to do so for as far ahead as the eye can see".

Well, thanks to economic policies shaped by such ludicrous beliefs, real incomes in America have drop­ped each year for the past 10 years, while the nation's real economic output (in terms of goods) is falling like a lead balloon. This is why the majority of Americans today cannot afford to buy homes; are driving much smaller cars than did their parents and grandparents; and are forced to use a lot less energy. Which, in turn, increasingly compels more wives to work (unlike Amer­ican mothers and grandmothers in the past) just to keep the family's economic nose above water.

Sylvia Porter

Sylvia Porter's brand of "economics" is spread to millions of Americans via her popular column that appears in newspapers throughout the nation. In addi­tion, she has authored best-selling books on income taxes and investments. While I am not fortunate enough to see Ms. Porter's column on a regular basis, I do get to read it from time to time and did see the four-part series on Social Security she did in February, 1976. These excerpts are from the fourth part of that series which appeared on February 5th.

Ms. Porter conceeds that "There are cruel ine­quities in the Social Security law...", such as "provi­sions that discriminate against women and the depen­dents of women workers" and provisions "that penalize older people who work" (the system presumably should then be liberalized to include such individuals). And, further, that there are, indeed, "financing problems which Congress must tackle and solve to keep this basic program up-to-date and effective". She, nevertheless, felt that Social Security was the "target" of unfair cri­ticism while her criticisms, on the other hand, she be­lieved were "... fair, objective criticisms, neither invit­ing panic nor insisting that all is in perfect order".

She proceeded to inveigh against those who sug­gest that Social Security be made voluntary which, she pointed out, "would be the death of our Social Security System, the abandonment of the program's fun­damental purpose — to a floor of protection for all our citizens and prevent poverty before it occurs". Porter then told her readers how lucky they were to have Social Security. "Even with the best of intentions," they were told, "millions of you simply would not set aside money regularly — particularly if you are low income workers or have a growing family. When you reached your older years, became disabled or died, you or your survivors would be forced onto the welfare roles, with your payments financed out of general Federal re­venues and state and local taxes. The cost to taxpayers would still be there, but the worker would not have contributed".

Here, of course, the implication is that the govern­ment would "set aside money" for participants in Social Security since individuals ("even with the best inten­tions") would not do so for themselves. Representations like this by presumed "experts," such as Ms. Porter, help create the illusion in the minds of the public that the

government is actually "saving" their money. These representations are, of course, sheer nonsense! Another misconception that Ms. Porter helped create is that without Social Security individuals would be forced onto the welfare roles. This line of thinking entirely overlooks the fact that individuals not compelled to pay Social Security taxes would have had far more money to purchase far better (and more secure) life insurance, disability protection and retirement plans than could be provided by government.3 For a time the government was able to provide unrealistic benefits in the short run — which means that many Americans will end up with nothing in the long run\

Her concern that without Social Security "you and your survivors would be forced onto the welfare roles, with your payments financed out of general revenues", reveals that Ms. Porter does not understand that Social Security benefits have always come from "general re­venues". All tax collections go into a common pot and are used by the government to pay all of its bills. Does Porter believe that Social Security payments are paid out of some special cash reserve which the government keeps in a shoe box? Or, perhaps payments are paid by selling off government assets? She obviously doesn't understand that, in reality, recipients of Social Secur­ity are, indeed, paid on exactly the same financial basis as those on "the welfare roles".

Social Security recipients receive money and benefits taken from current taxpayers (many of whom have trouble paying their own bills) on exactly the same basis as current workers are taxed to pay benefits to those on "the welfare roles". True, those receiving

' Overlooking completely the additional revenues and lower costs that would result from all this capital flowing into the private sector instead of being totally dissipated by government through taxation.

Social Security benefits might have, themselves, paid Social Security taxes in the past; but many on welfare also might have paid taxes in the past. Presumably then, welfare recipients are "entitled" to welfare ben­efits for the same reason that those who pay Social Security taxes are "entitled" to Social Security benefits.

Ms. Porter then pointed out that millions of people might "faithfully invest what you would have paid in Social Security taxes.. .you would not find a private insurance policy providing the comprehensive package of protection you now get from Social Security: retire­ment insurance, disability insurance, life insurance, health insurance for your older years. Even if you were able to put such a package together, it would cost far more than what you pay in Social Security taxes". Such an observation was, of course, more nonsense and demonstrated that she simply does not understand the nature of either insurance or Social Security — two subjects on which she is supposed to be an "expert."

She further said that even if people were "astute — or lucky — enough to create an investment portfolio that would give you the same return as Social Security, most of you would end up short of your goal or wiped out." I must ask Ms. Porter if Social Security really creates "an investment portfolio"? If not, why then did she make such a misleading comparison? As far as being wiped out is concerned, I leave it to the reader to decide which "investment portfolio" they would prefer — the one recommended by Ms. Porter or any average mutual fund?

The implications in both Professor Samuelson's and Ms. Porter's statements are variations on the same theme — the public will get "investment and insur­ance" bargains from the Federal government. So, with

the government deliberately misstating the facts with respect to Social Security on one hand, and with the (mis)information the public got (and continues to get) from private sector "experts" on the other, the Federal government was able to pull off the largest Ponzi scheme the world has ever seen.

Legal Cases Cited

Bente vs. Bugbee 103 NJL 608

Brushaber vs. Pacific RR 240 U.S. 1

Cairo Fulton RR vs. Hecht 95 U.S. 170

Carter vs. Carter Coal Co. 298 U.S. 238

Davis vs. Boston I.M.R. Co. 89 F2d 368

Davis vs. Edison Electric Illuminating Co. of Boston et

al 89 F2d 393

Flint vs. Stone Tracy Co. 220 U.S. 107

Gleason vs. McKay 134 Mass 419

Helvering vs. Davis 301 U.S.C. 619

Marbury vs. Madison 1 CR. 137

McCulloch vs. Maryland 4 Wheat. 316 (1819)

Miller vs. Illinois C.R. Co. 146 Miss 422

O'Keefe vs. Somerville 190 Mass 110

Patton vs. Brady 184 U.S. 608

Pollack vs. Farmer's Loan & Trust Co. 158 U.S. 429

Steward Machine Co. vs. Davis 301 U.S. 548

U.S. vs. Ballard 535 F2d 400

Reading List

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In order to effectively fight the IRS, each citizen should have a copy of the Internal Revenue Code since the IRS will misleadingly state the law and attempt to confuse you regarding IRS regulations (which are not binding when they conflict with the law — as many of them do).
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