Apr 10, 2012

Is Social Security Privatization Unconstitutional?

     I cannot find a link but the April issue of The New Yorker includes an interesting letter to the editor from Bruce Brown, former law clerk to Chief Justice Warren Burger. He was writing in response to a Jeffrey Toobin piece in the New Yorker on the oral argument of the health care case at the Supreme Court. Brown wrote that there is an argument out there that if the individual mandate requiring purchase of health care insurance is unconstitutional that any plan to "reform" Social Security which contains a mandatory contribution to an investment owned by the contributor may also be unconstitutional. A mandatory contribution seems to be an integral part of all the Social Security "reform" plans proposed by the right.

     Update: One right wing proponent of privatization, Andrew Biggs, seems to concede that if the health care mandate is unconstitutional that Social Security privatization would be even more unconstitutional since Social Security privatization could not be justified under the Constitution's commerce clause. What Biggs openly wants, however, is for the courts to find all of Social Security unconstitutional. Right wing schemes to "reform" Social Security are all aimed at undermining and ultimately destroying Social Security.


Anonymous said...

If the health care mandate is found unconstitutional, get ready for all kids of other claims.

Why should I have to contribute to SS? I should be able to opt out.

Don Levit said...

Social Security is a mandated tax, not a mandated contribution to purchase a private product. The tax was ruled constitutional in several Supreme Court cases, because the tax goes to the general welfare, not to a specific person.
That is why Social Security benefits are based on earnings history, not contributions paid.
As far as privatizing, it would not have been necessary if the special issue nonmarketable Treasury securities had been dedicated exclusively for SS beneficiaries. If that was the case, the $2.6 trillion could simply be liquidated, like any trust fund in the private sector.
Instead, the entire trust fund has been lent to the Treasury to pay for current expenses and lower the deficits.
Since 2010, when the interest of the bonds was redeemed due to the cash shortfall, the bonds weren't simply cashed in, as bonds operate in the private sector. No, they had to be redeemed with general revenues, because the principal and interest had already been spent over the years. And this transaction of using general revenues to make up the cash shortfall is an immediate budget expense, and increases the deficit.
The trust fund is not a store of wealth. It is a hollowed artifact, an acounting mechanism which details how much money can be withdrawn from the general revenues without an appropriation. It is the same way we pay for Medicaid.
Don Levit

Nobbins said...

Trustfund lol. That's all I have to say regarding that.

As for the unconstitutionality of Social Security:
1) Logic never got in the way of Republicans before and I don't see it stopping them anytime soon;
2) Repubicans beleive all of SS is unconstitutional anyway. I believe that a ruling against the mandate would actually embolden further attacks on SS, rather than weaken them (as Chuck more or less concluded at the end of his post).

Anonymous said...

The post FDR court packing Supreme Court pulled a "hat trick" to declare the Social Security Act constitional. The majority justices avoided the direct issue of the US Constitution giving Congress the power to enact of social insurance system. (They had earlier up held such a system for rail road workers under the commerce clause, which is rather obvious.) For broad Social Security, in stead, they ruled that Congress can tax (without earlier restrictions under the 16th Amendment) and the Congress can spend money -- taken together, you have SS contibutions = taxes, and benefits = spending. Next case.
So, when carefully viewed, the Supremes sided-steped directly ruling on the constutionaly of the Social Secuity Act by use of the tax and spend simplified view. And "tax and spend" would mean that Congress can do anything with MONEY, no constitional restrictions, which is what Liberal do. ...

Anonymous said...

Don Levit is right that the bonds for the SS "trust fund" are a unique type of US Treasury bonds. They have always paid sub-market intrest. This cheated SS beneficiaries.
In the end, the SS "trust fund" dollars ended up in Congressional spending and a future promis to repay (by the taxpayers).
And Lyndon Johnson, in the late 1960, included the SS annual contributions surplus over payments out in his "unified budget" to make his numbers look better.