Want to get a group of retirees riled up? Tell them their Social Security benefits are welfare benefits. Many years ago, Bohanon did this to his grandmother—“Momo, what day does your welfare check come?”—and saw all hell’s fury break loose. “It’s not welfare! Your grandfather worked hard and paid taxes for the check I get!”
Like many retirees, Bohanon’s grandmother thought of Social Security as a property right: like her bank account or her paid-for 1957 Studebaker. Unfortunately, this view is inaccurate even if it is widely held.
An annuity contract with a private insurer is an enforceable property right. A fixed-benefit, private-employer pension is generally an enforceable contract. An old-age transfer payment such as Social Security where the state takes from some citizens (current workers) to give to other citizens (current retirees) is as ephemeral as a politician’s promise.
A 1960 case, Fleming v. Nestor, is controlling. The Supreme Court held that workers covered by Social Security have no property right to benefits. The opinion ruled that to “engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility … which it demands. … It was doubtless out of an awareness of the need for such flexibility that Congress included … a clause expressly reserving to [Congress] ‘the right to alter, amend, or repeal any provision’ of the Act.”
The court majority did hold that Congress’ power to modify benefits is not unlimited. It could not deny benefits on “patently arbitrary classification utterly lacking in rational justification.” Four justices dissented from the ruling essentially on those grounds.
Nestor had emigrated from Bulgaria in 1913 and contributed to Social Security for 19 years. He became eligible for benefits in November 1955. In July 1956, he was deported for having been a member of the Communist Party from 1933 to 1939. Congress had voted to deny Social Security benefits to aliens deported for communist affiliation. Justice Douglas objected that this was a “bill of attainder”—a law targeting a specific group. The majority deferred to Congress’ judgment.
Whichever legal theory you agree with, consider the following question: If SCOTUS would not limit congressional power to refuse Social Security payments to a former communist, what is the chance the court would ever limit congressional power to modify benefits when Social Security runs out of money?
Surely that is a more “rational justification” than someone’s one-time political beliefs.•
Bohanon is a professor of economics at Ball State University. Styring is an economist and independent researcher. Both also blog at INforefront.com. Send comments to email@example.com.