But like millions of seniors then and now, Grandma was convinced that her Social Security benefits were an entitlement she had bought with her own payroll taxes years earlier. She blessed FDR for creating the Social Security trust fund in which she had faithfully invested for most of her working life, and couldn’t understand why her grandson had any objection to it.
In reality there is no money in Social Security’s trust fund and never has been. It is merely an accounting fiction, like the individual Social Security accounts to which workers’ payroll taxes are credited. But Grandma could hardly be blamed for believing otherwise. Right from the start, Social Security was promoted to Americans as a straightforward pension fund. “We have set up a savings account for the old age of the worker,’’ FDR told a Pennsylvania audience in 1936. Contributions would be made by employers and employees via payroll taxes, which would be “held by the government solely for the benefit of the worker in his old age.’’
It wasn’t true. In a decision the following year upholding the Social Security Act, the Supreme Court confirmed what anyone who read the law would already have discovered: Payroll taxes weren’t held by the government solely for the benefit for retirees. On the contrary: Social Security taxes “are to be paid into the Treasury like internal revenue taxes generally, and are not earmarked in any way.’’
Likewise, for all the talk of Social Security as an “entitlement,’’ retirees have no ironclad right to that monthly check. “Congress can change the rules’’ whenever it wants to, the Social Security Administration’s website acknowledges. “Benefits which are granted at one time can be withdrawn.’’ That too was explicit in the law FDR signed in 1935. There are no “accrued property rights’’ in the Social Security system, the Supreme Court ruled in 1960. Payroll taxes withheld from your wages today don’t confer on you a contractual right to benefits when you retire tomorrow.
