|excess of its legislative authority."
Supreme Court Arbitrarily Reverses Lower Court's Decision
On May 24,1937 (a day that should live in infamy) a perfidious Supreme Court reversed the Appellate Court's sound decisions and held the Social Security Act constitutional.6 On that day the Court arbitrarily and illegally affected a fundamental change in America's political, economic and social structure (which has cost the nation dearly ever since) and clearly demonstrated that the Court's lack of economic understanding was at least matched by its obvious ignorance of the Constitution or its willingness to subvert it.7
In arguing Social Security's unconstitutionality before the Supreme Court, Davis raised only two issues:
1. That the Act sought to raise revenue "for a particular purpose, not merely to produce revenue for the United States"; and that
2. the imposition of the tax on employers was not
' In Helvering vs. Davis 301 U.S.C. 619 and Steward Machine Co. vs. Davis 301 U.S. 548 (both decided on the same day) the Court (in Steward) did not address the First Circuit decision directly but affirmed a Fifth Circuit decision which had upheld as Constitutional the unemployment tax imposed by Title IX. Both cases, however, involved the same issues and the Court did note the First Circuit's contrary holding in its decision.
7 Two Supreme Court Justices, McReynolds and Butler, agreed with the lower court and stated their belief that the Act was repugnant to the 10th Amendment of the Constitution.
an excise tax within the meaning of the
It is important to note that since these were the only issues raised in this case, these were the only issues that the Supreme Court needed to address. As you will discover, the Act is blatantly unconstitutional on a variety of other grounds — none of which were raised in this or any other case.
Employers are "Agents" and "Stakeholders"
The government first attempted to knock out Davis's case by claiming that Davis himself had no standing to even challenge the Act's constitutionality. The government contended that he was acting merely as a stockholder and not as the actual payer of any of the taxes imposed by the Act. In pursuing this argument, the government made a number of interesting observations. It argued that"... since the employer is merely a withholding agent with respect to the employee tax, neither corporation or stockholder may ask for relief from it..."; and that"... the employee tax is a withholding at the source, the employer being a collecting agent or stakeholder. The withholding provisions themselves are not challenged nor could they be successfully attacked ...". (emphasis added in both quotes)
Since Davis had not even raised (much less attacked) the withholding provision, one wonders why the government even brought it up. But the government's claim that such provisions could not be "successfully attacked" is ridiculous since the withholding provision, if mandatory, would be unconstitutional on its very face!
First of all, the government admits that the em-
8 All references refer to Helvering vs. Davis, supra.
ployer is made an "agent" of the government. Where in the Constitution is the Federal government empowered to force private citizens to be its agents? In addition, a "stakeholder", as defined in Black's Law Dictionary, is "... a person with whom money is deposited pending the decision of a debt or wager... a third person chosen by two or more persons to keep in deposit property, the right or possession of which is contested between them, and to be delivered to the one who shall establish his right to it".
Can private employers, therefore, be made government "stakeholders" without first agreeing to accept the job? Did employees agree to have their employers act as their stakeholders? And, if employers are, in fact, "stakeholders", how can they deliver the funds they hold to the government before the government "shall establish (its) right to it... "?
Violation of the 13th Amendment
Nowhere in the Constitution is the Federal government empowered to force private citizens into government service as unpaid agents and/or stakeholders. As a matter of fact, the Constitution expressly prohibits it! Working for the Federal government as its agent (without pay) is "involuntary servitude" and is specifically barred by the 13th Amendment. However, the withholding "law" need not be challenged on this ground since the "law", remember, doesn't require (see page 44) anyone to withhold such taxes — employers are simply tricked and intimidated into doing it. The law contains no such requirement because, if it did, the law would be unconstitutional for the reason just described. Therefore, any employer who does not want to continue being the government's unpaid "agent" or "stakeholder" can
immediately stop withholding Social Security taxes from employee wages.
Social Security Taxes Not "Earmarked"
How did the government respond to Davis's claim that Social Security taxes were unconstitutional because they were earmarked for specific purposes? The government claimed that they were not earmarked! Social Security taxes, the government argued, were "... true taxes, the purpose being simply to raise revenue. No compliance with any scheme or Federal regulation is involved. The proceeds are paid, unrestricted, into the Treasury as Internal Revenue collections, available for the general support of government; that the appropriations were wholly independent appropriations ... "; and, thus, the Court could not deprive the revenue so raised of the "quality as a true taxing measure".
Thus, arguing before the Supreme Court, the government claimed that Social Security taxes were not earmarked for any purpose whatsoever. Is that what the government has been telling the American public? If Social Security taxes go into the Treasury as "ordinary tax collections" (to be used for whatever purposes the government chooses), what were the so-called "trust funds" all about? If Social Security collections are paid "unrestricted into the Treasury", how do we account for those headings shown in Figures 1 and 2. If the government had taken the position suggested by those section headings, the Supreme Court would have had no choice but to declare the Act unconstitutional! So, in order to get Social Security through the courts, the government had to argue a position exactly opposite from what it has been telling the public! The government's hypocra-cy on this matter was so obvious that an honest Appel-
late Court wouldn't buy it. A hypocritical Supreme Court, on the other hand, was able to deal with it in a very inventive manner (as you will see)!
Government's Main Argument
What was the government's main argument to the court? The government claimed:
The expenditures in the present case are clearly well within the limits of the power of Congress. The number of aged persons in this country is rapidly increasing; workers in urban industrialized civilization usually arrive at old age without adequate means for self-support, as is demonstrated not only by their earning powers during their working lifetime but by various studies which have been made of the extent of dependency of people over 65 years of age. Those who are able to call upon their children for support only aggravate the evil by depriving the younger members of the family of the resources which they need. Voluntary industrial pension plans cover but a few. Private charity is inadequate to cope with the problem. Even state old age benefit laws present grave administrative and financial problems.
Therefore, the expenditures contemplated by Title II are for the general welfare of the United States. More-over, the form of the expenditures is soundly designed to promote general welfare. The statute excludes employed aged persons, thereby providing a simple and easily administered means test which is legally sufficient. Mountain Timber Co. v. Washington, 243 U. S. 219, 230. The payments themselves are graduated both by wages and length of employment, so as to provide an incentive to work and at the same time roughly to relate benefits to past standards of living.
The Act does not require
retirement from employment and has no tendency to induce it. It does not constitute a plan for compulsory insurance within the accepted meaning of the term "insurance."
Thus the government's main argument for Social Security was a contrived and absurd socio-economic one. If American workers in 1936 arrived at "old age without adequate means of self-support", the obvious question was why? Why should 20th Century Americans have been more dependent in their old age than 18th Century Americans? Hadn't America made any economic progress in 150 years?
If a majority of Americans could arrive at old age being more dependent — and if their lives had become economically more hazardous than Americans living 150 years before — then America had obviously not made any economic progress since the Constitution was adopted. A nation makes such progress when it becomes progressively easier for all segments of society to exist. The disparity between economic classes might widen, but given improvements in technology and increases in capital formation, living at all social levels must become progressively easier if economic progress is being made. If empirical evidence shows that the reverse is happening, then an investigation is obviously called for to explain how such an anomoly can occur! The problem (if, indeed, it existed) cannot be summarily solved by merely passing laws! If it were that simple, then politicians could presumably pass laws to solve all of society's economic and social problems!
Taking Care of One's Parents
Notice the government's attempt to equate the discharge of an obvious filial responsibility (taking care of one's parents) into some kind of social and economic "evil". Also, if it is society's responsibility to take care of the elderly, what will motivate individuals to make provisions to take care of this contingency on their own? And if children are not responsible for the support of their own parents, who is responsible? Strangers?
Implicit in the government's whole argument is the assumption that taking care of individuals is a legitimate, constitutional concern of the Federal government (which it is not) and, further, that the Federal government possesses unlimited, independent wealth with which to pursue such an objective. Obviously the government intended (because of this program) to increase taxes which, in itself, would deprive "the younger members of the family of ... resources ... they need". So, younger members of society were going to be financially deprived one way or another! And, if private employers choose not to install pensions, does the Constitution then empower the Federal government to force them to do so?
Court: Federal Power Not Limited by the Constitution
Pensions, remember, are an indirect labor cost and must be born (like wages) out of labor's productivity. Money paid into pensions cannot be used for salaries, so can the government legally force employers to pay lower wages (as they now do) in order to install government favored pensions? Does the Constitution allow the Federal government to force such choices on private
business or to take over any economic function it desires simply by alleging that private capital or state governments are "inadequate" for the job? If functions which lie wholly within the constitutional authority of state government become "administrative and financial problems", does the Constitution then give the Federal government the power to replace them? If the answers to these questions are "yes", then the powers of the Federal government are not limited by the Constitution at all!
Government Admits "Insurance" Claim A Lie
Note further the government's contention to the Court that Social Security taxes are not "insurance" but to the public they have incessantly (and reduntantly) claimed otherwise, (see pages 209-215).
Note, also, the government's claim that a program that admittedly only pays "benefits if you stop work" will have "no tendency" to induce "not working". Such a claim was, of course, pure unadulterated poppycock and the government knew it. Every reader knows of individuals who stopped working simply because they became eligible for Social Security benefits. But the government absurdly claimed and argued otherwise in order to get Social Security through the courts.
How Did the Supreme Court Respond?
Since (as you will see) the Court obviously wanted to hold the Act constitutional, it contrived arguments to enable it to do so. First of all, Justice Cordoza (writing for the court) stated:
In this case Titles VIII and II are the subject of attack. Title VIII lays another excise upon employ-
era m addition to the one imposed by Title IX (though with different exemptions). It lays a special income tax upon employees to be deducted from their wages and paid by the employers. Title II provides for the payment of Old Age Benefits, and supplies the motive and occasion, in the view of the assailants of the statute, for the levy of the taxes imposed by Title VIII. The plan of the two tides will now be summarized more fully.
Title VIII, as we have said, lays two different types of tax, an "income tax on employees." and "an excise tax on employers." The income tax on employees is measured by wages paid during the calendar year. § 801. The excise tax on the employer is to be paid "with respect to having individuals in his employ," and, like the tax on employees, is measured by wages. § 804. Neither tax is applicable to certain types of employment, such as agricultural labor, domestic service, service for the national or state governments, and service performed by persons who have attained the age of 65 years. § 811
This passage shows that despite Cordoza's vaunted reputation the Justice had no real understanding of:
1. The taxing clauses of the United States Constitution;
2. the Social Security law that he was attempting to judge; and
3. the equal protection clause of the United States Constitution.
If Cordoza understood the taxing clauses of the Constitution and the 16th Amendment he would have realized that the Federal government could not possibly lay "a special income tax on employees". Either the tax was an income tax or it was not. The 16th
Amendment makes no provision for "a special income tax". But if the law imposed a new "income" tax, it obviously had to apply to all Americans who had "income", not just to some, and so the Act could not exclude from such a tax the "income" received by agricultural workers, domestic employees, state and Federal employees, employees of non-profit corporations, and, of course, those who were self-employed and retired. How could Cordoza not have known that the Federal government could not possibly levy an "income" tax on one segment of society while excluding numerous others from the same "income" tax?!
Note, also, Cordoza's statement that the "income tax on employees is measured by wages during the calendar year". This statement is complete nonsense! If it were true, the "income" tax would not be a tax on "income" but a tax on wagesl A tax on income obviously has to be measured by "income" not wages. The "income" tax was to be deducted from wages (based on a percentage of those wages) and it obviously cannot be "measured by wages", but must be measured by income.
If the tax on employees was to be "measured by wages", why didn't the act specifically say so? It could easily have said, "... in addition to other taxes there shall be levied upon the wages of every individual a tax equal to the following percentage of wages." The reason that the act was not worded in this way is that such wording would have immediately rendered the Act unconstitutional! Such wording would have cleary established the tax as an unapportioned direct tax on property (wages) and such a tax was held to be unconstitutional by the Supreme Court in 1895.9 The Supreme
" Pollack vs. Farmers Loan & Trust Co. 158 U.S. 429.
Court ruled later10 (in 1915, subsequent to the passage of the 16th Amendment) that the 16th Amendment allowed the government to levy an excise (indirect) tax on "income" as long as the tax on income was "separated from the source" of that income. Thus, in 1935 a direct tax on "income" (without apportionment) was theoretically possible while a direct tax on wages (without apportionment) was not. (Because the "direct" tax on income had to be levied in the form of an "excise" tax—actually making it an "indirect" tax in the Constitutional sense. These important Constitutional distinctions will be clarified in my next book.) So the government very sneakily worded the Act so as to be a direct tax on "income" in order to get within the law; but then proceeded to enforce the "law" as if it were a direct tax on "wages" which it was not! Worse yet, the Supreme Court allowed them to get away with it! Such is the type of legislative treachery that is practiced by the Federal government with the help of our "courts".
Social Security Taxes Admittedly Unconstitutional
When Cordoza stated that Title VIII laid two different types of taxes ("an excise tax on employers" and "a special income tax on employees") he openly admitted that the new "income" tax on employees (admittedly not an excise tax) was obviously a direct tax. And, since the Court has openly admitted that the tax on employees is a direct tax (since it's not an excise tax), it has to be apportioned according to Article 1, Section 2, Paragraph 3 and Article 1, Section 9, paragraph 4 of the
"Brushaber vs. Pacific RR 240 U.S. 1.
Constitution.11 Since it is not being apportioned, it is (by Cordoza's own admission) openly unconstitutional! Cordoza's admission provides all the proof that is needed that the entire Social Security Act is unconstitutional on at least two grounds, both of which are irrefutible since they have already been admitted by the Supreme Court:
1. The tax withheld from employee wages is an unapportioned direct tax; and
2. numerous Americans having "income" were specifically excluded from paying the tax in obvious violation of the taxing and equal protection clauses of the Constitution.
Employees Didn't Complain (Hah!)
The government also argued that "no employee is complaining". Obviously no employee at that time had the knowledge, time or money to challenge the Act. If any employee today challenges the Act on either of the above two grounds, the Act must fall on these two issues alone. But no employee need waste his money or time in court challenging the constitutionality of this "income" tax. The Court's admission provides all the necessary proof that the tax (if mandatory) is unconstitutional and all employers and employees are, therefore, free to disregard it. I, of course, will continue with my analysis in order to enlarge this expose of both the tax and the Federal judiciary.
11 The 16th Amendment did not amend or change these apportionment provisions in any way. All the 16th Amendment did was to remove a tax on "income" from these sections and place it into Article 1, Section 8, paragraph 1, clause 2. See Brushaber vs. Pacific RR 240 U.S. 1.