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Do we need a Constitutional Amendment to Fix Social Security?
A visitor to our Web site, Donald N. Farmer, suggests that Social Security could be improved by adopting the following constitutional amendment:
Section I The Congress shall ensure the continuation of the Social Security program and its continued solvency, in a manner that provides qualified recipients with equal to or greater than the accepted minimum standard of living.
Section II The Congress shall have the power to enforce this article by appropriate legislation.
To properly evaluate Mr. Farmer’s proposal, we must answer two questions:
 | Is it appropriate to define Social Security rights and obligations in the form of a constitutional amendment? |
| Is this the right amendment? Does it address and remedy the major problems of Social Security? |
Analysis
It could be argued that many of the problems currently faced by Social Security stem from the constitutional ambiguities present at its inception. The Social Security Administration itself notes:
The constitutional basis of the Social Security Act was uncertain. The basic problem is that under the “reserve clause” of the Constitution powers not specifically granted to the federal government are reserved for the States or the people. When the federal government seeks to expand its influence in new areas it must find some basis in the Constitution to justify its action. Obviously, the Constitution did not specifically mention the operation of a social insurance system as a power granted to the federal government (Social Security Online – History, [online] SSA; available from www.ssa.gov/history/court.html)
Since 1935, the Roosevelt administration had been telling the public that Social Security was insurance, and payroll taxes were to be used by Social Security to buy “annuities” for retirees. To the man on the street, this sounded great, and made the program immensely popular. But the constitutionality of a new, government-run insurance program was dubious due to the reserve clause of the Constitution. Therefore, in 1937, when the new Social Security Act was challenged before the Supreme Court, Roosevelt argued that there was, in fact, no insurance program at all – his public statements not withstanding. Instead, FDR emphasized the general welfare aspect of Social Security.
To this day, there is enormous public confusion as to the nature of rights and obligations inherent in Social Security. For this reason, the PPTO concurs with Mr. Farmer in the need for a clarifying constitutional amendment. Given the size of this program and its inter-generational impact, an amendment could be most useful.
This brings us to the second analysis question – what would be the right amendment? Mr. Farmer’s proposal emphasizes the guarantee of a minimum old-age benefit. While we agree with Mr. Farmer as to the need for guaranteed minimum benefits, the PPTO believes that benefits financed from the Social Security trust fund should be proportional to the payroll taxes paid by each worker. Minimum benefits, on the other hand, should be (in our opinion) financed from the Treasury’s general fund. The reasoning is quite simple: minimum benefits have the character of welfare and, as such, are the responsibility of income tax payers – not just wage earners subject to the payroll tax.
So, what kind a plan would we recommend? In his book, How Social Security Picks Your Pocket (Algora Publishing, 2003), Director Joe Fried proposes the following fantasy amendment. It creates a board of trustees with true administrative powers and independence from Congress. It calls for benefits that are proportional to the payroll taxes paid by each worker. It allows for the inheritance of uncollected benefits. And, finally, it allows for the creation of Personal Retirement Accounts, where elected by the individual worker. Although we do not necessarily recommend Mr. Fried’s fantasy amendment, we feel that it is worthy of consideration:
Amendment to the United States Constitution
Section 1. A well regulated and equitable retirement system being essential to the economic security and prosperity of the Nation, an independent retirement Trust, to regulate such a system, is hereby established.
Section 2. The Trust shall be administered by a Board of Trustees comprising seven individuals, each appointed for a six-year term. Three shall be appointed by the President, two by the House of Representatives, and two by the Senate. Except as specified in this Amendment, neither Congress nor the President shall have authority with regard to any matters of the Trust.
Section 3. The Trustees shall discharge their duties with respect to the Trust for the exclusive purpose of providing retirement and/or disability benefits to participants and their designated beneficiaries, and defraying reasonable expenses of administering the system with care, skill, and prudence.
Section 4. The Trust shall be funded by applying a uniform rate of tax to all covered employee wages (as defined by the Trustees), and the tax shall be applied to employee and employer in equal amounts. The rate of tax shall be established by the Trustees, but shall not exceed limits imposed by Congress. Administrative costs of the Trust shall be paid from this tax.
Section 5. To avoid undue influence in the private investment markets, the Trustees’ role with regard to the investment of funds shall be limited. In general, Trust funds shall be invested solely in special bonds carrying market rates of interest, and issued by the Treasury’s general fund. The preceding statement not withstanding, each participant shall be given the option of transferring part of his/her funds to a privately-owned Personal Retirement Account, to be used solely for retirement income purposes in accordance with guidelines to be established by the Trustees.
Section 6. The Trustees shall distribute benefits to each retired or disabled participant, or his/her designated beneficiary, in proportion to the total taxes collected from the participant, after reduction by the amount of his/her taxes (if any) transferred to a Personal Retirement Account. These benefits may be modified to appropriately reflect changes in actuary estimates of investment earnings and mortality rates during a rolling 75-year projection period. However, this system shall not be used as a vehicle for the distribution of general assistance, or for the promotion of social or political agendas.
(courtesy of Algora Publishing)
You now have two proposals for Social Security constitutional amendments. If you have your own ideas on this subject, please send them to us. We’d love to hear from you.
Responses:
Maria F. of Cleveland, Ohio states: "The constitutional amendment should be used only in the rarest instance."
Other respondents worry that a constitutional amendment would give permanency to a program perceived to be wasteful and inefficient. For example, Tom@xxxxxxxx.com states that "a constitutional amendment is the last thing I would want to see, given the fact that Social Security is one big mess!"
Still, some (a minority) have expressed support for the concept. This viewpoint is summarized by Sarah in Naples, Florida. She states that "This program is here to stay anyways. We might as well have an amendment, to make sure that the rules don't keep changing on it."