On the date 5 May 1991, Congressman Jim Slattery, (D., Kansas), member of the House Committee on Banking, Finance, & Urban Affairs, and former member of the Budget Committee, appeared on the program It's Your Business. During the discussion, he declared: "It's time to be honest about the Social Security fraud too; and that's something, from a generational standpoint, is the biggest intergenerational fraud ever perpetrated on one generation of Americans by another."
The record of the Eleventh National Conference on Social Security, entitled "Social Security in the United States - 1938", such conference held in New York City, 8 and 9 April 1938, under the heading "Social Security Reserves and Treasury Manipulations", Arthur A. Ballantine, former Under Secretary of the United States Department of Treasury; Director, American Association for Social Security, and addressing a projected reserve by the year 1980 in the amount of $47 billion, reported:
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Under the present Social Security Act, this great reserve is to be built up by billions of dollars which are to be taken from the payroll taxes over and above the amounts needed for current payments for old age benefits. But so long as the Federal budget is unbalanced - and unfortunately the prospects in that respect do not appear to be improving - the reserves set aside from these taxes are actually expended for the current needs of the government and are not held in any form for old age benefit payments. The payroll taxes today are used to meet the miscellaneous expenditures of the government and do not, as far as I can see, in any way promote the ultimate security of old age.
RESERVES ENCOURAGE EXPENDITURES
Even if the budget were balanced, it is most doubtful whether the reserves which are to be set aside from year to year can actually be applied toward the reduction of the outstanding national debt. The habit of spending the reserves for current needs is becoming more ingrained and decided resistance will be increasingly felt to any suggestion that the reserves be used for the reduction of the debt as a means of increasing the financial stability of the government. In fact, the enlarged current expenditures made possible by the reserves will encourage the maintenance of a scale of federal expenditures which will become a definite barrier to meeting the old age payments when they become due.
THE MISTAKEN ANALOGY WITH PRIVATE INSURANCE
Obviously the Secretary of the Treasury was influenced by the mistaken analogy of the federal old age benefit plan to private insurance. Private insurance companies are rightly required to set up adequate reserves to cover future liabilities as they are incurred. These are, of course, invested in sound securities - securities other than the obligations of the insurance companies themselves. But when applied to an old age insurance plan operated by the government, a full reserve is not only unnecessary but is ineffective and a most dangerous delusion. Not only has no other government attempted to set up reserves for old age payments on a comparable scale, but reserve provisions such as our government is undertaking are a temptation to government over-spending. Thus, while the security for old age benefit payments is fictitious, the encouragement to excessive expenditure is real. The present plan is merely one of eating the cake and fancying that we still have it.
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The Social Security pamphlets declare that Social Security contributions go into special trust funds, and that these trust funds are soundly financed both for the short-range and long-range future. The 1975 Report of the Quadrennial Advisory Council of Social Security declares, on page 45, that the system is based on the "current cost" method: "Under this approach, no fund is created during the life of a worker from which his benefits are ultimately paid. Instead the social security taxes he pays are immediately paid out by the government to persons who are already beneficiaries. His own benefits will be paid from taxes that are collected in the future from persons who are then working. The tax rate is set so as to provide tax receipts that approximate current expenditures. In essence, the plan transfers money from one generation to another with the amount taken from the one generation being measured by the other generation's benefit requirements."
W. Allen Wallis, from Rochester, New York, Chancellor of the University of Rochester, and former special assistant to President Eisenhower, and Chairman of the aforementioned committee, testifying before the Joint Economics Committee on the date 27 May 1976, declared: "Many people think that the Social Security taxes taken out of their wages and sent to Washington each month provide for their old-age pensions and other Social Security benefits. This simply is not the case. Those taxes are levied on workers in order to pay benefits to people who already have retired and are drawing their Social Security pensions, or to pay other Social Security benefits to those who already are drawing them.... When you pay Social Security taxes you are in no way making provision for your own retirement. You are paying the pensions of those who already are retired. Once you understand this, you see that whether you will get the benefits you are counting on when you retire depends on whether the Congress will levy enough taxes, borrow enough, or print enough money, and whether it will authorize the level of benefits you are counting on. The situation is in no way analogous to putting money each month into a private insurance company which invests it and undertakes to pay you an annuity. Misunderstanding of the pay-as-you-go nature of Social Security is widespread among journalists and the public. Indeed, this misunderstanding seems to have been deliberately cultivated sometimes, in the belief that it makes the Social Security System more palatable to the public."
Publication No. (SSA) 79-10053, August 1979, from the United States Department of Health, Education, and Welfare, Social Security Administration, declares: "Conceived as a compact between generations and between the people and their Government to meet the basic income needs of Americans, social security provides a financial foundation on which to build other savings for future income. This commitment is a "pay-as-you-go" system, making a direct transfer of money from workers to those who are retired or disabled, and to the families of workers who are disabled, or have died. Your benefits will be provided from the taxes of future workers. Today's taxes are used for today's needs."
This statement alone carries the basis of fraud and deception. The system was conceived as a trust fund for the future care of a participant. It was never thought of as "a compact between generations", whereas the future generations would become liable for the care of the participant. At the aforementioned hearing of the Joint Economics Committee, Senator Proxmire, while questioning the Commissioner of Social Security, James P. Cardwell, made this statement: "Furthermore, we have the capacity under the Constitution, the Congress does, to coin money, as well as to regulate the value thereof. And therefore we have the power to provide that money. And we are going to do it. It may not be worth anything when the recipient gets it, but he is going to get his benefits paid."
