Today in Supreme Court History: August 14, 1935

8/14/1935: President Roosevelt signs into law the Social Security Act of 1935. The Supreme Court upheld the constitutionality of this law in Helvering v. Davis (1937).

President Franklin D. Roosevelt

Comments

[Mr. Bumble]

...and so began the greatest Ponzi scheme in world history.

[DaivdBehar]

If you had invested your and your employer's payments in an Index Fund, with no decision making permitted, no gambling, your monthly SSA payment would be triple. Where has the difference gone?

[DaivdBehar]

Roosevelt, Harvard Law indoctrinated moron, and one of the very worst Presidents. Blew up worthless garbage government and prolonged the depression for years beyond the expected natural rebound. Sent iron to Japan to build fighter planes that attacked Pearl Harbor. Waited years to declare war. Failed to kill Hitler and Hirohito. Vile anti-Semite denied asylum to Jews fleeing the concentration camps. An unmitigated lawyer catastrophe.

[Michael D]

I think FDR attended law school at Columbia rather than Harvard.

[DaivdBehar]

Corrected. Thank you.

[Krayt]

Social Security suffers problems for the exact reason Ponzi schemes were made illegal.

Moreover, it was portrayed as a savings plan, but is legally welfare: transfers of money from current taxpayers to current recipients.

It will never dry up, but the amount you collect is less than you paid in, for decades now. The amount collected should have been much greater all along, but they'd have run FDR out of town on a rail.

And forget the lockbox/saved amount for the baby boomer retirement. It ended up doing what it was supposed to avoid, heaving it all onto the debt. Except it's a little worse in the overhead of the pretended lockbox, than just forging ahead, skipping the pointless extra layer of paperwork.

[Life of Brian]

The amount collected should have been much greater all along, but they'd have run FDR out of town on a rail.

In all fairness to FDR, I don't know that the math in the Social Security Act as originally enacted was all that crazy.

In 1935 the average life expectancy was about 61 and benefits in the original 1935 Act didn't start until 65. Even with the original 2% contribution rate, that probably would have worked since the expectation was most wouldn't get [m]any benefits.

The real problem came as life expectancy continued to increase and politicians didn't have the brains and/or cajones to adjust the contribution/benefit ratio nearly to the extent needed to keep up.

[Dan Schiavetta]

The problem is solved if the income cap is removed. But it’s perfectly fine for everyone if rich people pay less.

[Life of Brian]

I wouldn't mind seeing the math on that. Assuming it works, that's certainly one way to adjust the contribution/benefit ratio. But that involves being more candid than politicians historically have been that it's just another a redistribution program rather than savings/investment/safety net.

[PeteRR]

..."income cap is removed"

What about the benefits cap, will that be removed? If not the program is a naked welfare scheme with income forever divorced from benefits.

[Sarcastr0]

Most proposals would raise benefits.

But also, oh no welfare for our elderly!! Isn’t what what most these days consider social security to be - part of our nation’s responsibility to care for its elderly and disabled?

[SRG]

When someone holds that SS is simultaneously a terrible investment and costs the government too much, you know they're FOS.

[Mr. Bumble]

...and just who are you referring too? Nothing in the posts so far says what you claim.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

When someone holds that those twin complaints are incompatible, I know they're FoS.

How about you give my 12% of your pay now, and I promise in 40 years I'll pay you money I won't have?

[Mr. Bumble]

"I'll gladly pay you Tuesday for a hamburger today".

[PeteRR]

If the average person just took the entire amount withheld under FICA, plus the employer match, and all they did was buy US treasuries with it, they would get a higher return than what SS provides now.

[ReaderY]

Find me a private insurance company that would give you the disability insurance, spousal insurance, and the various other insurance plans that Social Security also provides for the zero premium you are using as your comparison value.

[Life of Brian]

"Zero premium" is a bit of a howler. But setting that aside:

The spousal piece continues to pay the surviving spouse the higher of the surviving spouse's and deceased spouse's payments, so the only additional cost to the government is the delta between the payments. You could run the numbers, but I doubt that's a huge piece of the pie (particularly as M/F wages and workforce participation rate continue to converge). So it's not clear there's much if any benefit to a typical surviving spouse over just inheriting a private investment account from the deceased spouse (as well as keeping their own).

The disability piece certainly could be left as a separate catastrophic insurance plan. Without even debating whether it's presently overutilized, it's only ~10% of the entire SS budget. That's somewhere in the 1.5% employee/employer contribution range.

Not sure what "various other insurance plans" you're referring to.

[Dan Schiavetta]

American Trucking Ass'ns v. Gray, 483 U.S. 1306 (decided August 14, 1987): Blackmun upholds injunction creating escrow for extra taxes paid by truckers who were challenging a new highway equalization tax on Dormant Commerce Clause grounds; Arkansas insisted on collecting taxes anyway, so escrow would keep the extra funds out of the state's pocket (I remember those stickers saying, "This truck pays $20,000 year in highway taxes" . . . I wonder if anyone wrote under that "and causes $50,000 a year in wear and tear") (the truckers ultimately won, sub nom. American Trucking Ass'ns v. Smith, 496 U.S. 167, 1990)

McDaniel v. Sanchez, 448 U.S. 1318 (decided August 14, 1980): Powell stays order requiring county officials to proceed with "preclearance" procedure (the now-illusory §5 of the Voting Rights Act) for new apportionment plan; says Court must decide whether the plan, already approved by the District Court, is "legislative" (requiring preclearance) or "judicial" (not) (the Court ultimately held that the District Court should not have ruled on the plan; it should have been submitted directly to the Attorney General, 452 U.S. 130, 1981)

Stickel v. United States, 76 S.Ct. 1067 (decided August 14, 1956): Harlan denies continuance of bail pending cert approval because cert petition argues a point which appeared only in dicta in the lower court's decision (trial judge erroneously applied preponderance instead of reasonable doubt standard in denying motion to acquit, but conviction affirmed on grounds that denial was proper even under reasonable doubt standard)

[F.D. Wolf]

Frances Perkins, the first woman to serve as a Cabinet secretary, was Secretary of Labor from March 1932 to June 1945, the entirety of President Franklin Roosevelt's tenure and the first three months of President Harry Truman's. On October 23, 1962, at the age of 80, she delivered a speech to Social Security Administration employees entitled "The Roots of Social Security".

Before I was appointed, I had a little conversation with Roosevelt in which I said perhaps he didn't want me to be the Secretary, of Labor because if I were, I should want to do this, and this, and this. Among the things I wanted to do was find a way of getting unemployment insurance, old-age insurance, and health insurance. I remember he looked so startled, and he said, "Well, do you think it can be done?"

I said, "I don't know." He said, "Well, there are constitutional problems, aren't there?" "Yes, very severe constitutional problems," I said. "But what have we been elected for except to solve the constitutional problems? Lots of other problems have been solved by the people of the United States, and there is no reason why this one shouldn't be solved."

"Well," he said, "do you think you can do it?" "I don't know, " I said But I wanted to try. "I want to know if I have your authorization. I won't ask you to promise anything." He looked at me and nodded wisely. "All right," he said, "I will authorize you to try, and if you succeed, that's fine."

"Well," I said, "that is all I want." I don't want you to put any blocks in my way. We'll see what we can do. There are plenty of people," I said, "who want it badly and will work for it."

This was the way it all began...

The legal committee soon broke into a row because the legal problems were so terrible. The constitutional problem was the greatest one. How could you get around this business of the State-Federal relationships? It seemed that couldn't be done.

We continued to wrangle about it' for days. But one day I went out to tea, although not because I wanted to. In Washington you don't go to parties just because you want to go, you know; you go because you have to go. I had to call upon Mrs. Harlan F. Stone, the wife of the Supreme Court Justice. She was at home on Wednesday afternoons and so about 5:45, which is nearly the end of the day, I went to her house and presented myself. There were a lot of other people there. We went up to the dining room to get a cup of tea, and there I met Mr. Justice Stone who had just come home from the Court and was getting his cup of tea. We greeted each other and sat down and had a little chat.

He said, "How are you getting on?" I said, "All right." And then I said, "Well, you know, we are having big troubles, Mr. Justice, because we don't know in this draft of the Economic Security Act, which we are working on--we are not quite sure, you know, what will be a wise method of establishing this law. It is a very difficult constitutional problem, you know. We are guided by this, that, and the other case." He looked around to see if anyone was listening. Then he put his hand up like this, confidentially, and he said, "The taxing power, my dear, the taxing power. You can do anything under the taxing power."

"You can do anything under the taxing power," said Justice Stone at the tea party. The Court, in Helvering v. Davis did not apply that rationale, relying instead upon Congress' power to spend for the "general welfare". The novel idea that the Taxing Power allows Congress to "do anything" might not have survived beyond that 1930s tea party until Chief Justice John Roberts' brilliant legal exegesis in NFIB v. Sebelius some 80 years later.

[F.D. Wolf]

I had meant to include a link to the whole speech, which includes some audio clips.

https://www.ssa.gov/history/perkins5.html

[Michael P]

Ah, the good old days, when Democrats thought the Constitution was worth considering before they launched their hare-brained schemes.

[F.D. Wolf]

And, of course, Perkins tenure began in 1933, not 1932. Damn the lack of an edit button!

[Dan Schiavetta]

Social Security is, by far, the most successful government program ever established, and the one that has done the most good.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Assuming your PoV for the sake of argument, its sheer incompetence and inefficiency is a cautionary tale for those who don't cover their eyes and ears as to general government incompetence and inefficiency.

[Dan Schiavetta]

You cannot point to evidence of “incompetence and inefficiency”.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

Can you, or anyone, point to evidence of competency or efficiency?

[Sarcastr0]

Don’t ship the burden. You made the assertion, back it up with more than anti-government ideology.

[Mr. Bumble]

Sure Candide, this is the best of all possible governments and they are trustworthy stewards of the taxpayers money.

[PeteRR]

SS has unfunded liabilities of $20+ trillion. Unfunded meaning we have no stream of money to pay it.

SS is just a simple transfer payment system and yet here we are.

I don't blame the SS administration for this. Congress had the opportunity to fix the problem of the baby boom ending and chose to just demagogue the issue instead of fixing it. In the '90s they could have transitioned to a public private system where people wanted to stay in the system could have and others would the chance to move over a private pension/investment account. The additional costs to do so would have been minimal compared to the hole we're in now.

[Mr. Bumble]

Sure, for the government anyway. A steady stream of dollars in excess of the requirements to pay benefits which can only be "invested" in government securities. Sweet, until it isn't as outflow is now greater than inflow.

[ReaderY]

Commentators who say you could make more buying treasury bonds are, among other issues, valuing SSI, disability insurance, and spousal insurance at zero dollars.

It’s like saying the rent on a bare apartment is less than the rent on a furnished apartment with all utilities included, so it must be a better value. You have to look at the value of the complete package. Maybe you think you don’t need furniture or utilities. But don’t try to pretend they are worthless.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

All those additional add-ons are just a refinement of "baffle them with bullshit", aka government camouflage: add so much confusing crap that any story is plausible.

[ReaderY]

Disability insurance (for children etc., not just the worker as in private plans), spouse pension for non-working spouses…that’s all bullshit? If you’re telling me that’s bullshit, you’re probably also going on to tell me the Brooklyn Bridge is a good investment.

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

What do those provide that requires government, other than theft of wages? They are insurance matters, and insurance companies are far more competent and efficient than government.

[Sarcastr0]

Begging the question. And forgetting we live in a republic that sets tax rates.

[Sarcastr0]

You didn’t respond to Reader’s point about valuation.

You instead just ranted about the gubberment. Empty burnishing of your libertarian cred is all you got?

[Dan Schiavetta]

It's hilarious seeing people claim that a reasonably savvy investor could easily get a better return. How many savvy investors are there? And if your grandparents didn't play the Wall Street game before, how savvy do you think they'll be when they start misplacing their glasses and forgetting their medication?

It's all a plan to get that money (and there's an awful lot of it, in total) into the already-full pockets of 28-year-old money managers who can churn and churn, generating huge commissions for themselves, with only very remote consequences if their investment decisions go bad. GW Bush tried that and fortunately could not get Congress to go along.

[F.D. Wolf]

Congress' real objection to privatizing Social Security is that it won't be able to pilfer the fund as it has for decades to pay for other things. The "lockbox" is empty except for IOUs from the government.

Why not place individual payments into S&P 500 mutual funds? The government can insure the payments, as it does with bank accounts. It can also regulate commissions and other aspects of the management of the funds, even delegate those to government employees if it is concerned.

If someone dies before his 65th birthday or soon thereafter, he gets nothing or almost nothing for a lifetime of payments. Why not let him pass the accumulated funds on to his family instead of the government?

[Dan Schiavetta]

1. Sounds like adding another layer of bureaucracy.

2. It is a myth that Social Security is bankrupt, or headed there.

3. If you are concerned with the government using SS to cover deficits, then the obvious solution is to keep a Democrat in the White House. Deficits go down under a Democratic President, and they explode under a Republican. This has been true since fiscal 1969 (the first year SS was counted in the budget). It's an iron rule of American politics by now.

[F.D. Wolf]

Deficits don't rise or fall; they accumulate. It is no cause for celebration when one year's deficit is a trillion dollars, but the next year's is a "mere" half-trillion. Besides, who controls Congress is more important than who controls Congress when it comes to spending. As for your "iron rule", I suspect that Congress' three mega-raids on the Treasury these last two years will mark the end of that.

The ultimate question, however, is to whom do your social security payments belong: you or the government? It seems to be the only "trust" that automatically devolves to the government upon your death.

[Mr. Bumble]

Wow you are really heaving the methane laden bullshit today.

The only reason to continue SS for at least a while is that after 90 years there is a reliance factor. That doesn't mean it should be continued as is.

1. Sounds like adding another layer of bureaucracy.
FD's plan would but how about letting people make their own decisions like with IRAs and 401s. Offer a government sponsored plan for those who want it.

2. It is a myth that Social Security is bankrupt, or headed there.
Not entirely true. While not currently bankrupt it is certainly headed there unless changes are made. According to the latest SSA report I can find : "The projected reserve depletion date for the combined OASDI trust funds is 2035," That reserve is just shy of $3trillion.

3. If you are concerned with the government using SS to cover deficits, then the obvious solution is to keep a Democrat in the White House. Deficits go down under a Democratic President, and they explode under a Republican. This has been true since fiscal 1969 (the first year SS was counted in the budget). It's an iron rule of American politics by now.
Deficits are only part of the problem and 87,000 new IRS agents won't solve it. The bigger problem is the debt which continues to grow, with no end in sight.

https://www.ssa.gov/policy/trust-funds-summary.html

[Á àß äẞç ãþÇđ âÞ¢Đæ ǎB€Ðëf ảhf]

how savvy do you think they'll be when they start misplacing their glasses and forgetting their medication?

Like Pelosi, Biden, Schumer, and all the rest? Have you listened to them or seen them recently?

[Sarcastr0]

Appeal to your own biases and you can say anything!

[PeteRR]

It was sold as a savings plan and a retirement plan.

[PeteRR]

They are getting less than if they had invested that money in something as simple as US treasuries. Just getting back what you contributed means the system doesn't work.

[Michael P]

Did you look at the figures in the results section? Figures 5 through 7 make it clear that 5% is the fraction of people who do better with Social Security. The only people who do better with SS than the S&P 500 are low earners who live a long time (especially if they wait until age 70 to retire).

[Michael P]

FDR's legacy is one of constitutional blight.

[PeteRR]

The administrative costs for SS are not included in the returns SS provides. The SS administration is run out of the general budget, with us, the taxpayers footing the bill.

There is no way in hell the vast sprawling SS system is more efficient than just buying treasuries via Schwab or a similar low-cost brokerage.

[Sarcastr0]

The taxpayers are also among the beneficiaries.

Appealing to incredulity is weak.

[Michael D]

No, what is terrible is the government intervention that caused the Depression in the first place. And that is what brought about the program, to alleviate the difficulties brought about by the Depression.

[Michael P]

No. 5% do better under SS, and 95% do worse.

The study looked at both an index fund and T-bills, and while the S&P 500 did the best, the percentages were not that different.

[Michael P]

That was before FDR was done. A legacy is what a person leaves behind, you know?

[Sarcastr0]

He is still in the top 3 Presidents among all but the unreconstructed Bircher types.

[DaivdBehar]

Great comment, bruh. See you next Tuesday.