by Bob Greenslade, The Price of Liberty

After President Bush put forth his proposal to “partially privatize” Social Security, newspapers across the country inundated the American people with editorials and articles defending the present system. The Chicago Sun-Times called Social Security “the most successful government program ever to be invented.” Since most Americans, including the staff at the Sun-Times, blindly assume that the federal government was granted the constitutional authority to establish this so-called retirement/insurance program, the origin of Social Security is rarely discussed. In the author’s opinion, if the media was functioning as government watchdogs, as opposed to government lapdogs, it would be asking a question that goes beyond any proposal to partially privatize Social Security. Was the federal government granted the constitutional authority to establish Social Security or is it just another usurpation of power?

When Franklin Roosevelt and his New Dealers were contemplating Social Security in the early 1930′s, they were faced with a problem. Roosevelt, then governor of New York, identified this problem several years earlier in his “States Rights” address of March 2, 1930:

“As a matter of fact and law, the governing rights of the states are all of those which have not been surrendered to the national government by the Constitution or its amendments.”

After asserting that Congress had the power to legislate concerning Prohibition because that power had been given to them by the 18th Amendment, he continued by stating:

“[T]his is not the case in the matter of a great number of other vital problems of government, such as the conduct of public utilities, of banks, of insurance, of business, of agriculture, of education, of social welfare, and of a dozen other important features. In these Washington must not be encouraged to interfere.”

The reason the federal government “must not be encouraged to interfere” was because it lacked the constitutional authority to interfere. Not only had the States not surrendered these powers, but they did not vest the federal government with any general authority over them.

After becoming President, Roosevelt quickly changed his tune and pushed for an unparalleled expansion of federal power.

Following his election in 1932 and the implementation of his New Deal policies, much of Roosevelt’s legislation was challenged as unconstitutional and struck down by the Supreme Court. A majority on the Court, who had been appointed by Republicans, began declaring cornerstones of the New Deal unconstitutional in 5-4 decisions. The New Dealers were frantic. In 1934, Secretary of Labor Frances Perkins expressed concern to Supreme Court Justice Harlan Stone that the social security system they were devising would be declared unconstitutional. Stone replied — “[t]he taxing power of the Federal Government, my dear, the taxing power is sufficient for everything you want and need.”

Justice Stone was not referring to the Sixteenth Amendment, the so-called income tax Amendment. He was referring to the taxing provision found at Article I, Section 8, Clause 1. This provision grants Congress the power “[t]o lay and collect Taxes, Duties, Imposts and Excises, to pay the debts and provide for the common Defense and general Welfare of the United States.”

At this point, you are probably asking yourself a question. If Social Security is a legitimate retirement/insurance program as the politicians and the media claim, then what do taxes “to pay the debts and provide for the common Defense and general Welfare of the United States” have to do with the constitutionality of Social Security?

The answer can be found in the opening clause of the Social Security Act of 1935. It is entitled as “[a]n Act to Provide for the General Welfare.” Since the federal government lacked the constitutional authority to compel the people of the several States to participate in a federal retirement or insurance program, Roosevelt and his New Dealers had to structure Social Security as an excise tax under Article I, Section 8, Clause 1. They inserted the general welfare verbiage to make it appear as if the federal government was exercising a legitimate constitutional power. [Note: excise taxes fall in the class of indirect taxes and are synonymous with privilege taxes. As such, they can be avoided by not taking the privilege. This means that excise taxes are voluntary taxes]

Immediately after the Social Security Act was passed, various provisions of the Act were challenged as unconstitutional and reached the Supreme Court in 1937. In the case of Helvering v. Davis, the Court, in a 5-4 decision, sustained the constitutionality of the Act as an excise or income tax under the general welfare provision cited above.

Based on the Social Security plan devised by the New Dealers, employees would not making contributions into a retirement or insurance program. They would be paying a “special income tax” which would be deducted from their wages and paid to the federal government by the employer. This excise tax is imposed on the employee for the so-called “privilege” of being employed by an employer. Under Social Security, working as an employee for an employer became a federal privilege and subject to taxation.

A similar standard was applied to employers. Under Social Security, employers would not be making matching contributions into a retirement or insurance program for their employees. They would pay a separate excise tax for the privilege of having employees in their employ. Thus, under Social Security, the act of employing employees was made a federal privilege and subject to taxation.

Under the Helvering v. Davis decision, the Court basically declared that Congress has the subjective authority, unrestrained by the judiciary, to declare what constitutes the general welfare irrespective of whether that determination corresponds to the specific legislative grants of power contained in the Constitution. Not only was this contrary to the principles of limited government and enumerated powers, which are the foundation of the Constitution, but it was also contrary to the constitutional meaning of the general welfare phrase.

In the author’s opinion, the Supreme Court, in 1937, was simply looking for a way to expand federal power and escape FDR’s threat to restructure the Court. Since the Constitution does not grant the Supreme Court the constitutional authority to define the extent of the powers granted to the federal government or amend the Constitution from the bench by changing the meaning of words, this matter remains, in the author’s opinion, unresolved. Therefore, it is important to re-examine this issue and establish the true meaning of the general welfare phrase as it relates to Social Security.

In sustaining Social Security under the general welfare provision, the Court failed to perform a basic function. It neglected to establish the constitutional meaning of the words contained therein. A review of a standard dictionary shows that the words “general” and “welfare” are defined as follows:

“General. 1: involving or applicable to the whole. 2: involving, relating to, or applicable to every member of a class, kind or group.”

“Welfare. 1: the state of doing well, esp. in respect to good fortune, happiness, well-being or prosperity.”

The word welfare is derived from the words “well” and “fare” and means a “state of faring well” or “well being.” When the Framers used the word welfare in the Constitution, they were using it in this context. They were not referring to government social aid programs like Social Security. These programs were virtually unknown to the Framers and would have been classified, in the language of the day, as a form of “poor relief.” Thus, the common definition of the general welfare phrase, as it was used in the Constitution, was “the whole group’s well being.”

The other words that need to be put in constitutional context are the words “United States.” These words, as they appear in the founding documents, do not refer to a geographical territory or a single nation. The phrase “United States” was the name of the compact or union that was established between the several States when they adopted the Articles of Confederation. When the Framers drafted the present Constitution, they retained the term because the document was a continuation and expansion of the old constitution. Thus, the words “United States” specifically refer to the several States in their united or collective capacity. [i.e., the States united]

If the words “general welfare” and “United States” are put in their proper context, then the general welfare provision grants Congress the power “[t]o lay and collect Taxes… to provide for the… group well being of all the United States.” The “entire group” being referenced is not the people, as comprising a single nation, but the several States in their united capacity. Since the Constitution is a compact or contract between the several States, and the States are only united within the scope of the powers enumerated in the Constitution, this composition of the general welfare provision is in totally harmony with the intent and construction of that document.

Alexander Hamilton sustained this fact in his writings on the Constitution. In Federalist No. 83, he reduced this principle to a single sentence:

“The United States, in their united or collective capacity, are the OBJECT to which all general provisions in the Constitution must necessarily be construed to refer.” [Emphasis not added]

The general welfare clause, being but a part of a general provision of the Constitution, applies solely to the States “in their united or collective capacity.” If the Constitution had established a social compact or union between the American people, and they were the object of the general powers delegated to the federal government, then it would have been an absurdity to reference the States, in their united capacity, as the object of the general welfare phrase. In addition, if the Constitution had been established for the well being of the American people, then that same people would have been the “whole group” referenced in the general welfare phrase.

Based on the above definitions, Social Security should have been struck down because Congress used a provision of the Constitution that applied to the States, in their united capacity, and unconstitutionally applied it to the people. When Congress inserted the words “[a]n Act to Provide for the General Welfare” at the beginning of the Social Security Act, that body took a clause that granted Congress the power “[t]o lay and collect Taxes… to provide for the… group well being of all the United States” and twisted it into a power that granted Congress the power to tax and appropriate money for the general welfare generally. This was a gross usurpation of power.

The American people should never lose sight of the fact that the individual States are not united generally. They are united specially. In other words, the States are only united within the scope of the limited powers delegated to the federal government. When the States are operating within these powers through their agent, the federal government, they are identified as the United States and the general welfare provision applies to them collectively. The opposite applies when the States are not operating within the delegated powers. Outside of the delegated powers, the States are known as the several States and are independent sovereign entities. Thus, Congress cannot have broad power to declare what constitutes the general welfare because the States are not united generally.

There are other facts that disprove a broad interpretation of the general welfare provision. In order for Congress to have extensive and indefinite power to tax and appropriate money for the general welfare, the federal government would first have to have been granted total power over both domestic and foreign affairs. In Federalist Essay No. 45, James Madison, who is recognized as the father of the Constitution, provided a blueprint of the Constitution when he distinguished the external powers granted to the federal government from the domestic powers reserved to the States:

“The powers delegated by the proposed Constitution to the federal government are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which last the power of taxation will, for the most part; be connected. The powers reserved to the several States will extend to all the objects which, in the ordinary course of affairs, concern the lives, liberties, and properties of the people; and the internal order, improvement, and prosperity of the State.”

Since the constitutional powers of the federal government are few and do not extend to internal or domestic affairs, the federal government cannot have unspecified and indefinite power to tax and appropriate money for the general welfare. That government has no general legislative authority to do anything concerning the life, liberty or property of the people of the several States. Thus, domestic social aid programs like Social Security are nothing but a usurpation of power because they violate these constitutional principles.

In Federalist Essay No. 41, Madison, in discussing the limited powers delegated to the federal government, stated that they could be reduced to 6 categories of powers:

“That we may form a correct judgment on this subject, it will be proper to review the several powers conferred on the government of the Union; and that this may be more conveniently done they may be reduced into the different classes as they relate to the following different objects: 1. Security against foreign danger; 2. Regulation of intercourse with foreign nations; 3. Maintenance of harmony and proper intercourse among the States; 4. Certain miscellaneous objects of general utility; 5. Restraint of the States from certain injurious acts; 6. Provisions for giving due efficacy to all these powers.”

Since Social Security cannot be placed into any of these 6 categories of power, to sustain this domestic social aid program as a valid exercise of power under the general welfare provision was nothing short of an unconstitutional power grab by the federal government.

Even Supreme Court Justice Story, whose 1833 commentaries on the Constitution helped form the basis for the 1937 decision upholding Social Security referenced above, recognized that the federal government lacked the constitutional authority to establish these programs. In his analysis of the general welfare provision, Justice Story stated that the federal government had not been granted the authority to meddle with the “systems of education, the poor laws, or the road laws, of the states.”

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If the federal government did not have the constitutional authority to institute domestic social aid programs like Social Security in 1833, as acknowledged by Justice Story, and did not have the authority in 1930, as acknowledged by President Roosevelt, then how could Congress have acquired this power in 1935? Since the Constitution had not been amended, there can only be one conclusion. The federal government, acting through its political appointees in the Supreme Court, simply opened the door for a new interpretation of the general welfare provision that deleted words, changed the meaning of the words, and was absent of the basic limitations incorporated into the Constitution by the Founders. In short, the Court re-wrote the Constitution from the bench and handed Congress almost unlimited power to tax and spend so long as it cites the general welfare provision as the constitutional authority for the legislation.

The present debate over President Bush’s plan to “partially privatize” Social Security is nothing but a debate over which usurpation of power is best for the federal government. The method will be different but the result will be the same. The American people will continue to be taxed for the so-called privilege of working as an employee or employer under the guise of contributing to a constitutionally authorized retirement/insurance program. Since the federal government’s power under the general welfare provision applies to the States collectively, not the people generally, taxing the American people to fund this unconstitutional social aid program is just another usurpation of power.

Originally published March 3, 2005 at www.thepriceofliberty.org

Bob Greenslade [send him email] has been writing for www.thepriceofliberty.org since 2003.

Billions of dollars were recently lost in the collapse of Bernie Madoff’s self-described Ponzi scheme, in which too-good-to-be-true returns on investments were not really returns at all, but the funds of defrauded new investors.  The pyramid scheme collapsed dramatically when too many clients called in their accounts, and not enough new victims could be found to support these withdrawals.  Bernie Madoff was running a blatant fraud operation.

Fraud is already illegal, and he will be facing criminal consequences, which is as it should be, and should act as an appropriate deterrent to potential future criminals.  But it seems every time someone breaks the law, politicians and pundits decide we need more laws, even though lack of laws was not the problem.

The government itself runs a fraud much bigger than Madoff’s.  Our Social Security system is the very definition of a Ponzi, or pyramid scheme.  If the government truly had an interest in protecting people’s savings, they would allow people to opt out of Social Security altogether.

We would cut wasteful spending, such as our overseas empire, to honor current obligations to seniors, and eventually phase the program out.  Instead, as with Enron and Sarbanes Oxley, I expect new, unrelated legislation to be proposed that further damages freedom in the name of protecting us, amidst loud proclamations that they have made the world safe.

Merely passing a law does not fix any problems, just as throwing paper at a recession does not stop it.  How can a government so complicit in mandatory public fraud effectively pre-empt private fraud?   I see no reason to believe that any new law, or regulatory agency will solve anything.

But I do see liberty slipping away every time Congress decides to “do something”.  We already have an oversight agency, the SEC, which did a poor job overseeing and preventing this, but does a great job hamstringing honest, productive businesses and driving them overseas.

Total trust in government solutions only creates moral hazard, and amplifies risky behavior.  Trust in government got us here.  We trusted government to eliminate risk, but it just made risk more creative and dangerous.  We trusted the Federal Reserve, a supra-governmental cabal of private banks, to know better than the free market what interest rates should be, and how to stabilize the business cycle, but like a spinning top that loses its balance, it has instead spun the business cycle and the economy wildly out of control.

No governmental activity can negate market forces or nullify the cardinal rule of caveat emptor.  Government can however, use our fears against us and promise unrealistic outcomes as a means to consolidate power and erode our liberties.  Liberty comes with risk.  This is a fact of life.  But life without liberty is not much of a life at all.

The only way the American people will get through these difficult times is through our own resilience and ingenuity.  At best, the government is irrelevant in finding prosperity again.  At worst, government can present a massive obstacle for the economy to overcome.

If we do not wise up and rein government back in to its Constitutional limitations, bloated government could be a cumbersome unnecessary weight the economy will continually have to support to stay afloat.

Ron Paul is a republican member of Congress from Texas.

Today in the same breath someone, to me, attacked Bush for violating the Constitution, and not supporting Social Security enough.

Apart from the fact that the “raiding” of Social Security actually makes the S.S. Trust Fund more solvent and is a good investment (as it is guaranteed safe by the Constitution, and earns interest), and apart from the fact that Congress controls that more than Bush (and that it has continued under the Democrats) … there’s also the fact that Social Security is an unconstitutional violation of our rights, as per the Tenth Amendment.

Feel free to complain about violations of the Constitution. But don’t do so while propping up OTHER violations of the Constitution. It makes you look like you don’t care about the rule of law.

And don’t argue with me about the Tenth Amendment.

No one who understands the Tenth Amendment can honestly say it allows for Social Security, unless from the position of arguing that we are not under the rule of law, but the rule of men, and I reject that premise out of hand.

Pudge works for Slashdot writing computer programs in Perl, writes and records music, works with the local Republican party, eats steak, follows Boston sports, and has a life.  See more of his writings at http://pudge.net/glob/

We are working to overcome a hundred years of indoctrination and increased dependency. The Founders would be appalled that, almost 221 years since our Constitution was written, we are now having to re-explain what a Republic is and how it works.

Federalism is the great lost concept.

The Tenth Amendment specifically states that any powers not given to the federal government are reserved by the States and the people. End of story. What we have not given D.C. is still ours.

In recent history, Congress has justified entirely ignoring the Tenth Amendment by citing its “implied powers.” The problem is that the “implied powers” are only those powers used by Congress in pursuance of their delegated powers.

It is possible to streamline operations and return to the states the powers they once held. Dr. Paul is not in favor of immediately abolishing programs like Medicare, Medicaid, and Social Security because, while these programs are unconstitutional and ultimately harmful, too many Americans have been made dependent on them for those programs to be immediately ended.

Dr. Paul’s transition plan would cut our overseas spending by several billion dollars and use that money to protect the domestic programs on which many depend, at the same time allowing young people to opt-out of Social Security, and ending the requirement that they pay for Medicare and Medicaid out of their paychecks.

Imagine a return to federalism. What works in one state could be adopted by another. What doesn’t work could be avoided. Currently, we have a “one-size-fits-all”-style of governance that forces all states to endure bad policies. If California wants certain energy standards, then they should be able to pass them and see what happens, not enact those standards on a national level and force every other state to adopt the same.

It’s high-time that more people understood not just what the 10th says, but why – and how its restoration will be a huge step in the advancement of your liberty.

Read more here

Let me ask you a couple of questions.  First, which demographic segment has the best voting record?  Meaning, of any age group, which group votes more regularly than any other?

Old people, right?  Retirees, seniors…old people.  No offense intended.

So if you wanted to propose a government entitlement program and your goal was to be elected to four terms in the White House, you would want to make the beneficiaries of this newly proposed program…old people, right?

Well if your name is Franklin Delano Roosevelt, that would be your proposal.

In Social Security we see the United States’ shift from the Constitution to Socialism begin by proposing that the government “pay” seniors a retirement benefit that, at the time, none had paid into!  So an entire generation of “old people” have received their benefits, have died since, and have left the rest of us shackled down with an entitlement program that is both outdated, ineffective, and all but bankrupt, while an entire generation of Americans has been shackled down with the tax burden of paying for our forbearers retirement.

Oh, and did I mention the part about unconstitutional?

Now, throwing out the ‘U’ word is kind of harsh on first reading, but consider the facts.  The Constitution guarantees individuals the unalienable right (from the Declaration of Independence) to “the pursuit of happiness,” previously known as “the pursuit of property.”  In other words, our government guarantees me the right to pursue personal wealth!

Note:  Nothing in the Constitution guarantees that I, myself, personally, will achieve personal wealth, only that I am able to pursue wealth.  Property.  Toys, if you will.

Now, if I am amongst the unfortunate few who are unable to retire because I spent all of my income on toys, partying, or my seven wives, well, then I kind of did myself in.  Imagine what life might have been like had I settled at three wives and invested the alimony that I paid the other four.  I would retire a millionaire.

Now refer to the Constitution on this matter.  No such Power of the United States to “get your back” if you don’t – or can’t! – retire because you don’t – or can’t! – save!  The first rule of Finance is “consumption forgone equals investment.”  In other words, what you don’t spend, you can save and invest!  And in general, if done intelligently, investment generally grows.

So if growing one’s personal wealth involves, 1.) Earning an Income, 2.) Saving an excess, and 3.) Investing that excess, then it begs the question – can an individual out-invest the government?  In other words, can I outpace the Social Security program’s approximately 4% rate of return by investing in my own personal IRA or 401 (k) account?

Well, I have the last two years!  I have averaged approximately 20% growth in my personal retirement plans the last two years.  For those of you who know anything about investing in the market, you know that is not only good, it is great!

Inflation creeps along at about 3 to 3.5% per year, which means that at best your Social Security “investment,” also known as taxes, actually only increase at about ½ % per year.  If salaries increased at that rate we would see Revolution in the streets.  All the while, including inflation, my personal investing is increasing at above a 15% clip very comfortably.

Then you take into account the devaluation of the dollar and the fact that I am heavily invested in foreign funds and learn that my MBA in Finance (including International Finance) is paying for itself in about three ways!

And now we start hearing from Republican candidates for President on their proposed solutions for the future of the Social Security system and they are heavy on later retirement ages, lowered benefit amounts, and hybrid personal investment accounts.

The problem boils down to this:  The Constitution does not delegate this Power to the Congress, nor to the Federal Government.  The Power to pass the ‘Social Security Act’ and set up an entirely new organization within the Federal Government is not even granted to the Congress and the Government to enact.

Did you note that?  Go back and re-read the previous paragraph.

Once again, if you know anything about our Constitution, you know that it is a limited Constitution.  That means “The United States,” meaning the national government, did not set itself up.  It did not just spring forth from the ground one day.

The United States was instituted in the Declaration of Independence, and its government’s powers were enumerated in the Constitution of the United States.  Only those Powers delegated to the various branches of the federal government are given, and none of those includes the power to determine its own powers.

Our limited Constitution does not delegate the Power to pay retirement benefits, and it does not delegate the Power to delegate the Power to pay retirement benefits.  Note the distinction.  Our national government is not given the Power to determine what its Powers are.

Its Powers are explicitly enumerated, and in some cases implied as in the “Necessary and Proper Clause,” but in no way can the rational mind justify the trend towards Socialism that we began under Roosevelt and have continued all the way into the present, where elected Representatives who refuse to grant that which is not theirs to grant, namely S-CHIP, or children’s healthcare benefits, are reviled as some hideous beast for refusing to violate the Constitution.

Neither is it in the Powers of the government to engage in giving away healthcare insurance, nor is it in the Powers of the government to engage in the investments or retirement industries.  There are for-profit industries set up to provide these services, whose profits are taxed, and whose business it is to provide such services.

It is not the Power of our government to engage in business.  The concept of the “pursuit of happiness,” or property, entails that the government gets out of the way and allows individual creativity and drive be awarded by engaging in business.  Government has shown in every way at every opportunity a decided inability to engage in efficient business practices in areas that are necessary to carrying out the every day task of running the bureaucracy such as accounting, human resources, and payroll.  These tasks are even beginning to be outsourced to for-profit industry in order to streamline the government’s business practices.

Yet we expect an entity that cannot even pay its own employees efficiently to engage in for-profit areas effectively?  There is a reason its Powers are limited.  And if we want to add to those Powers, it is not left to the Federal Government, or its candidates, but to the Amendment process.

I suggest that we recall this, and quickly.

David Smith is gearing up for a run at the US House of Representatives.  His hot-button issue is States’ Rights. See more of his writings at his blog, http://silvertrombone.townhall.com