Mailbag: "Bear Trader" Writes on Social Security: Do recipients have a "right"?

In our telephone conversation about the trading action of the SP500 you mentioned that the Federal Government didn't seem to be following my July 12th email. This is true.

In that email I intended to show that the Federal Government has plenty of money enough to pay the Social Security Pensions as they come due for many years. I think I showed that, barring conversion of Social Security Trust Fund Assets into Political Slush Fund Assets, that adequate funds exist to pay SS pensions until about 2035.

I did not say that SS Trust Fund Assets would be available to pay SS pensions. This is a political decision. The Federal Government has no liability for SS pension payments and can stop them at will. Technically it would require a change of law but executive order would work also. Section 1104 of the 1935 Act, entitled "RESERVATION OF POWER," specifically says that "The right to alter, amend, or repeal any provision of this Act is hereby reserved to the Congress."

Highly germaine is the Supreme Court case "Fleming vs. Nestor".

http://www.ssa.gov/history/nestor.html

From the site,

"The fact that workers contribute to the Social Security program's funding through a dedicated payroll tax establishes a unique connection between those tax payments and future benefits. More so than general federal income taxes can be said to establish "rights" to certain government services. This is often expressed in the idea that Social Security benefits are "an earned right." This is true enough in a moral and political sense. But like all federal entitlement programs, Congress can change the rules regarding eligibility--and it has done so many times over the years. The rules can be made more generous, or they can be made more restrictive. Benefits which are granted at one time can be withdrawn, as for example with student benefits, which were substantially scaled-back in the 1983 Amendments.

There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense. That is to say, if a person makes FICA contributions over a number of years, Congress cannot, according to this reasoning, change the rules in such a way that deprives a contributor of a promised future benefit................

In this 1960 Supreme Court decision Nestor's denial of benefits was upheld even though he had contributed to the program for 19 years and was already receiving benefits. Under a 1954 law, Social Security benefits were denied to persons deported for, among other things, having been a member of the Communist party. Accordingly, Mr. Nestor's benefits were terminated. He appealed the termination arguing, among other claims, that promised Social Security benefits were a contract and that Congress could not renege on that contract. In its ruling, the Court rejected this argument and established the principle that entitlement to Social Security benefits is not contractual right."

So, you see, there is no "right" to Social Security benefits whatsoever.

Good luck to us all.