The Truth about Social Security
Volume 1, No. 8
by
Richard McDonald
The purpose of this Newsletter is to inform you of the truth
of the Social Security System.
First, before I begin to explain, I must define the terms
"employee" and "employer". The correct legal definitions of
these terms are: "Employee" = working for the government, and
"Employer" = government or government protected workplace. The
W-4 form is a Class 5 gift tax form; by signing this form, you
are stating that you are receiving the gift of employment from
the government, so everything you receive is profit or gain as a
U.S. citizen.
In the history of the United States of America, there is
probably no more dramatic demonstration of deliberately designed
misinformation than the literature put out by the Social Security
Administration. One need go no further than three (3) decisions
handed down by the U.S. Supreme Court (two in 1937 and one in
1960) to realize what blatant deception the current Social
Security literature contains. These cases are: Steward Machine
v. Davis, 301 U.S. 548 (1937); Helvering v. Davis, 301 U.S. 619
(1937); and Flemming v. Nestor, 363 U.S. 603 (1960). These cases
clearly enunciate the position of the Supreme Court on the Social
Security Act and the actual legal position of those who expect to
receive benefits from it. Highlights of these cases are as
follows:
1. The payroll deductions of workers do NOT go into a pool
or trust fund, but:
"The proceeds of both (the employee and the employer) taxes
are to be paid into the treasury like other internal revenue
generally, and are NOT earmarked in any way."
[Helvering v. Davis, 301 U.S. 619, 635 (1937)]
2. The Court points out that payroll deductions of American
workers are NOT payments on premiums for insurance of any kind,
but are simply income taxes:
"... eligibility for benefits ... (does) not in any true
sense depend on contribution through the payment of taxes."
[Flemming v. Nestor, 363 U.S. 603, 609 (1960)]
3. Furthermore, payments made by employers for each of their
employees are NOT matching to be credited to the account of the
employee, but constitute an EXCISE TAX on the employer's right to
do business. Consequently, his so-called "contributions" go
directly into the general fund of the treasury.
4. People participating in Social Security payroll deductions
do NOT acquire property rights or contractual rights through
their payments, as they would if they were paying on an insurance
policy or contributing to an annuity plan. Simply put, there are
no guarantees! The Congress does have power to deny benefits to
citizens, even though they had paid S.S. taxes. Also, the amounts
of benefits granted are at the option of Congress. Flemming v.
Nestor, 363 U.S. 603, 610 (1960).
5. Benefits granted under Social Security are therefore NOT
considered earned by the worker, but simply constitute a gratuity
or gesture of charity. As the Court states:
"Congress included in the original Act, and has since
retained a claim expressly reserving to it the right to
alter, amend, or repeal any provision of the Act".
[Flemming v. Nestor, 363 U.S. 603, 610-11 (1960)]
In effect, Social Security benefits are not unlike pensions
to be given or withheld at the discretion of Congress.
6. Payroll deductions which a worker pays (a special kind of
"employment/income tax") do nothing more than qualify him for
consideration as a recipient of a charitable gift. His payments
do not guarantee him anything. They do not guarantee the amount
to be received, nor the duration of the gift. The Congress can
alter or abolish the entire process at any time.
Justice Hugo L. Black, dissenting in the Nestor case, stated
that the whole Social Security thesis, as expounded by the
majority of the Court, is that the government is giving the
participating citizen "something for nothing and Congress can
stop doing so when it pleases." He further stated:
"I cannot believe that any private insurance in America
would be permitted to repudiate its matured contracts with
its policy-holders who have regularly paid all the premiums
in reliance upon the good faith of the company."
[Flemming v. Nestor, supra]
[Justice Black dissenting]
It was only a short time after the Supreme Court had
revealed that Social Security funds are:
"... paid into the Treasury like other internal revenue
generally, and are NOT earmarked in any way ..."
and that the Social Security Administration went right ahead
publishing literature fraudulently proclaiming that payroll
deductions:
"... are strictly accounted for and kept separate from the
general funds of the U.S. Treasury."
[Quoted by Warren Shore]
[Social Security: The Fraud in Your Future]
[The MacMillan Co., New York, 1975, Page 23]
Literature from the Social Security headquarters also
continued to talk about its "insurance plan," and the
"contributions" which are "pooled" in a "trust fund." All of
this was deliberately misleading in view of the Supreme Court
decisions cited above. Had a private insurance company so
grossly misrepresented its position in this same manner, its
officers probably would have been sent to jail.
Ever since 1935, the Social Security Administration has laid
such great emphasis on its "trust fund", that the average citizen
believes that his benefits are paid out of this "fund". The
Administration knows this is NOT true since benefits are paid out
of the general treasury. It therefore refers to its so-called
trust fund as a "reserve of assets" to back up the Social
Security program.
What this "reserve fund" amounts to is simply an
accumulation of United States Bonds which wouldn't pay the
liabilities of the system even if they were to be cashed in
tomorrow. Furthermore, a government Bond is nothing more than a
claim against the American people for taxes not yet collected.
This is also true of the interest which must be paid on the bond.
Neither the bond, nor the interest to be paid on it, constitutes
an "asset" in any real sense of the term.
For a government agency to accumulate a quantity of
government-owned bonds and call these a "reserve" of assets, is
like a man writing himself a bundle of I.O.U.s and listing these
as "assets" on his financial statement to the bank. People tend
to think of a "trust fund" as more or less liquid funds which
have an available cash flow if needed. The Social Security system
has no such funds.
Unfortunately for some, and tragically for others, the words
of Warren Shore describe the real situation:
"Obviously, there is no pool, just as there are no trust
funds. Both words remain in the Social Security Lexicon not
because they are true, but because they help to foster the
public notion that Social Security is like insurance with
its premium pools and trust funds regulated to support the
promise made."
[ibid., page 22]
Because ALL funds collected in the name of Social Security
are never earmarked for any special use, they are intermingled
with and spent each year like any other funds. This means that
billions of dollars collected by the Social Security
Administration in the early days of the program were used during
1935 to 1945 to help finance the military requirements of
national defense incidental to World War II. Since the war,
funds collected in the name Social Security have continued to be
spent on all the miscellaneous appropriations of the government
including foreign aid, salaries for nearly three (3) MILLION
federal employees, and various regulatory agencies of government.
In recent years there has been considerable talk about the
Social Security system becoming "insolvent" and getting close to
"bankruptcy." The government itself is largely to blame for this
misconception because it has used this line to justify the
gigantic leap in Social Security taxes. They said these
increases were absolutely necessary to keep the system "sound."
At the same time, the Social Security Administration has been
promising tremendous increases in "benefits" if the people would
tolerate this new wave of increased taxes. In reality, what
Congress really accomplished was to create more resources for the
general fund of the treasury for political giveaway programs. The
scare tactic of a "bankrupt" Social Security system has been
immorally used against aging Americans to minimize resistance to
the new tax gouging in the name of Social Security.
The main thing to keep in mind is that Social Security
cannot go bankrupt, in the ordinary sense of the term, because it
is able to depend upon the government power to raise revenue by
compulsory means through taxes rather than a trust fund such as
insurance companies are required to have. As long as the people
will allow Congress to "tax and tax, spend and spend, elect and
elect, the people are too damn dumb to understand" (according to
the political formula of Harry L. Hopkins as administrative
assistant to Franklin D. Roosevelt), Social Security will
continue to be a runaway spending program.
The Social Security board of trustees emphasized the power
to tax as a secret weapon in 1972 report to Congress by stating:
"Because compulsory social security insurance is assured of
continuing income ... it does not have to build up the kind
of reserves that are necessary at all times in an
institution that cannot count on current income to meet
obligations."
The Taxpayers Federation immediately issued a press release
stating:
"It is now publicly acknowledged that all adherence to sound
insurance practices have been abandoned. This single
decision assured ever-mounting tax bills for the system
without any possibility of relief. It is the ever-mounting
tax bills which constitute the greatest threat to the Social
Security system, and by 1980 that threat had become terribly
real."
Fifty-eight years ago the Federal Government created the Social
Security Program. In 1935 it was a new government program for
American citizens. It did not then, and does not now include all
citizens. Some groups, such as railroad workers, certain
professionals such as doctors and lawyers, and also government
employees (including members of Congress) are not members of the
plan. Until just recently, certain religious groups also were
not members of the program.
The government program for U.S. citizens' Social Security is
literally called the Federal Insurance Contributions Act, and is
frequently abbreviated as FICA. As with some other government
program names, the actual name is not totally correct and is
somewhat misleading. The FICA program is not an insurance plan
in the commonly accepted fashion, because there is no guarantee
that the citizen will receive certain benefits. A private
insurance policy must have protected and positive benefits for
its members. The word "insurance" in "FICA" is not a correct
description, as Congress has total control over the amount as
well as the duration of all benefits. Collections or payments can
be changed at the whim of Congress, which has been done from time
to time.
The third word in the name, "contributions" is also
deceptive and misleading. In the various FICA publications, the
word "donation" is commonly used as a substitute for the term
"contributions". Most dictionaries define these words to mean
that something is voluntary, optional, and is NOT mandatory. The
simple fact is that the FICA program is voluntary and optional.
No law has been passed requiring any State Citizen to enroll
in, and/or subscribe to, the FICA program. Remember, classes of
workers, such as government and railroad employees, are exempt
from joining. There is strong influence and coercion to make
everyone enroll in the FICA program, but there is no requirement
that it must be done. Joining the program is voluntary, and the
right not to enroll is protected by the U.S. Constitution.
Described another way, a FICA number CANNOT be forced upon any
State Citizen, but must be requested by you. Usually, a FICA
number is requested and received when the State Citizen is
legally a minor. There is a question of validity of such action
as minors are not allowed to participate in contract, especially
one that has a lifetime application.
Other groups OFFICIALLY exempt from the FICA program are
non-profit organizations and also hospital employees. Farmers,
commercial fishing boats, international agencies like the U.N.,
workers at tax-supported universities, schools, and workers at
any tax-exempt entity generally do not have to participate.
Preachers, pastors, priests, rabbis, and monks do not pay FICA
taxes if they choose NOT to.
To withdraw from FICA as a group, notice of intent must be
presented to the IRS two years in advance of the actual
withdrawal action by the group. As a reflection of the fading
confidence in the FICA, there is a growing increase of notices to
withdraw, such as the State of Alaska (which was refused).
Besides the obvious unreliability of the FICA program, the recent
increase in contribution rates is another reason for citizens to
consider ending participation.
In many cases workers have more withheld for FICA than for
"income tax". Currently, the so-called average worker works for
more than one-third of the year for the government, based on
these two deductions alone. Originally, a FICA membership card
carried a warning that the card was to be used only by the Social
Security Administration, and not to be used as "identification".
Since then, the warning caution has been removed from the card
and the number has become a common identification for items such
as bank accounts, drivers licenses, etc.
The Social Security program has various examples of a double
standard. One such example is that amounts will be withheld from
a worker even if he does not have an FICA number, but there is no
such requirement to withhold from a State Citizen. The law does
not require a State Citizen to have an account number, but
collects a contribution from compensation unless the worker is in
some class (status) that is OFFICIALLY exempt. One method to be
exempt from payment to the FICA by withholding is to work under
contract which specifies that all compensation must be received
and there are no deductions for any purpose.
The State Citizen's right to contract is protected by your
State Constitution and in the U.S. Constitution at Article I,
Section 10. Such a financial contract agreement is beneficial to
both worker and workplace. The workplace has reduced bookkeeping
costs, and does not pay "matching" amounts toward FICA. The
company having reduced business expense by avoiding FICA costs
could invest such amounts, experience an increase in profits, or
share the amount with worker, etc. Such working agreements are
within the State Citizen's rights which were established over 200
years ago. A State Citizen cannot be subjected to government
programs that infringe upon rights, such as FICA.
The collection of FICA tax is accomplished by the IRS. The
"code book" for the IRS is Title 26 of the United States Code.
This code (26 U.S.C.) is pertinent to "income tax". Income tax
is an indirect-excise type of tax. This specification is defined
in Congressional Report #80-19A, dated Jan. 17, 1980. Unlike a
"direct" tax, any indirect excise tax is the result of having or
using a special license or privilege that is granted by
government, such as federal citizenship. If a State Citizen does
not have or use a special license or privilege, they are not
subject to an excise tax. Some State Citizens are confused about
the income tax and believe a tax is owed on the compensation
(wages, salaries and commissions) received by them for performing
some service. Careful study of this subject reveals that opinion
to be incorrect. There is a tax on "income", but it does not
include wages, salaries, tips, commissions, etc. This is so
stated in the IRS Code itself which describes FICA tax, in
Section 3101 of Chapter 21, as follows:
"RATE OF TAX (A). "In addition to other taxes, there is
hereby imposed on the INCOME of every individual a TAX."
... This type is an indirect tax and has been so ruled by
the Supreme Court in Flemming v. Nestor, 363 U.S. 603, 609 (1960)
in which it states that the employee's portion of Social Security
is an "income tax", and is not a premium payment for any kind of
an insurance program. Notice also that Section 3101 of 26 U.S.C.
separates and distinguishes a difference between "income" and
"wages".
This means the amounts of withholdings/contributions are
determined by wages earned; however, contributions/withholdings
are NOT required until a State Citizen earns an income. This
statement is very important to the proper understanding and
application of the FICA "tax". Simply put, if State Citizens do
not receive income (profit or gain), they are not subject to
deductions for FICA. This is the same authority used for the tax
on income.
Liability for FICA is NOT the result of being an worker, but
is based upon the condition that the worker receives a profit or
gain (income). Section 3102 (B) of 26 U.S.C. strongly influences
employers to contribute and withhold FICA tax from their workers,
attempting to make the workplace responsible for the tax if the
worker decides to halt withholdings (volunteering).
Many citizens are confused about what income tax is and
believe it to be a tax on compensation (wages, salaries,
commission) received by them for performing some service. This
is untrue. There is a tax on income, but that tax does NOT
include taxes upon wages, salary, tips, compensation, etc.
Taxing these categories was automatically repealed in 1946, when
it was ruled that a tax on the source (wages etc.) can only be
levied for a term of two (2) years once our government declares
war, per Article I, Section 8, Clause 12, United States
Constitution. This is also indicated in the I.R.S. code itself
where it describes the FICA tax, in section 3102 of Chapter 21,
which reads as follows:
"Rate of Tax (a). In addition to other taxes, there is
hereby imposed on the income of every individual a tax equal
to the following percentage of the wages ...."
The government is admitting in section 3101 that income is
income and wages are wages. The words income and wages have two
(2) different meanings, thus are not income and cannot be taxed.
Notice carefully that 26 U.S.C. 3101 also specifies that
FICA "contributions" are taxes. This is an indirect excise tax
and has been so ruled by the Supreme Court in Flemming v. Nestor,
363 U.S. 603, 609 (1960), for employers' portion, commonly called
the matching half. This tax liability directed at the employer is
the result of business operation permitted by government.
The Supreme Court ruled in Flemming v. Nestor, 363 U.S. 603,
609 (1960), that employee's portion is an income tax and it is
not a premium payment for any kind of insurance program.
Remember, Sec. 3101 of Chapter 21 of Title 26 clearly shows that,
until citizens receive income (profit/gain), they are not subject
to deductions for the FICA tax. This is the same authority as
the Federal/State tax on "income", for until Citizens receive
income (gain/profit) they are not subject to having Federal/State
taxes withheld from their property (wages) and no employer has
any right or authority to withhold property from any employee's
paycheck unless said employee voluntarily signs and files a W-4
form with the employer, authorizing the employer to withhold the
tax at the source.
The Supreme Court has addressed this issue three (3) times
since FICA was enacted:
1. The payroll deductions of workers do NOT go into any
pool or trust fund, but:
"The proceeds of both (the employee and the employer) taxes
are to be paid into the treasury like other internal revenue
generally, and are NOT earmarked any way."
2. The Court points out that payroll deductions of
American workers are NOT payments on premiums for insurance of
any kind, but are simply income taxes:
"... eligibility for benefits ... (does) not in any true
sense depend on contribution through the payment of taxes".
[Flemming v. Nestor, 363 U.S. 603, 609 (1960)]
3. Furthermore, payments made by employers for each of
their employees are NOT matching to be credited to the account of
the employee, but constitute an EXCISE TAX on the employer's
right to do business. Consequently, his so-called "contributions"
go directly into the general fund of the treasury and
"... are NOT earmarked in any way".
[Helvering v. Davis, 301 U.S. 619, 635 (1937)]
4. Workers participating in Social Security payroll
deductions do NOT acquire any property rights or contractual
rights through their payments, as they would IF they were paying
on an insurance policy or contributing to an annuity plan.
Simply put, there are no guarantees! The Congress has power to
deny benefits to citizens even though they have paid Social
Security taxes. Also, the amounts of benefits are changeable from
year to year at the option of Congress. Flemming v. Nestor, 363
U.S. 603, 610 (1960).
5. Benefits granted under Social Security are therefore
NOT considered earned by the worker, but simply constitute a
gratuity or gesture of charity. As the Court states:
"Congress included in the original Act, and has since
retained, a claim expressly reserving to it the right to
alter, amend, or repeal any provision of the Act."
[Flemming v. Nestor, 363 U.S. 603, 610 (1960)]
In effect, Social Security benefits are like pensions to be
given or withheld at the discretion of Congress.
6. Payroll deductions which a worker pays (a special kind
of "income tax") do nothing more than qualify him for
consideration as a recipient of a charitable gift. His payments
do not guarantee him anything. They do not guarantee the amount
to be received, nor the duration of the gift. The Congress can
alter or abolish the entire progress at any time.
7. From the Nestor case, Justice Hugo L. Black gave his
dissenting opinion which stated that the whole Social Security
thesis, as expounded by the majority of the Court, is that the
government is giving to the participating citizens "... something
for nothing and Congress can stop doing so when it pleases."
Since the government cannot compel "voluntary contributions,"
then the workplace must be withholding property on their own, in
violation of authority. This act is an act of illegal conversion
/ theft, and no amount of arbitrary "commands" or coercion by the
IRS can justify this act by a workplace, as it is unlawful and
creates a cause of action for the worker.
# # #
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Richard McDonald