Can you imagine anyone in their right mind going before 40 million retired geezers who paid payroll taxes all of their working lives and telling them that they have no right to the payments they're receiving? You would have to believe that the elderly can't shoot straight.

To prove their point, these people usually cite two Supreme Court cases that don't mean much of anything today, Fleming vs. Nestor of 1960 and Helvering vs. Davis of 1937. You don't hear politicians talking about these court decisions because most Congress critters are also lawyers and they know something about "implied contracts."

Fleming versus Nestor was a civil rights case from the Joseph McCarthy communist witch hunt days, one of the most embarrassing moments in the history of U.S. justice. A portent of what's to come under the new Patriot and Homeland Security Acts.

Fleming was the Secretary of Health, Education, and Welfare that in those days managed Social Security. Ephrain Nestor came from Bulgaria but worked in the U.S. for more than 40 years without becoming a citizen. He belonged to the American Communist party between 1933 and 1937 when that party was forming the CIO that later became the AFofL/CIO and finally just the AFofL.

Nestor paid payroll taxes for nineteen years before retiring. He was retired and drawing Social Security when McCarthy had him deported for being a communist twenty years beforehand. He went back to Bulgaria where he received his Social Security checks until our government decided it wasn't right to be sending money to a deported communist in a communist country.

The arguments the Supreme Court used to deny Ephrain his benefits were the same arguments from Helvering and Davis of 1937.

After the Social Security Act was passed in 1935, arguments continued over the government's constitutional authority to collect taxes for an insurance program fashioned after private enterprise. George P. Davis was a stockholder in the Edison Electric Illuminating Company of Boston who enjoined that company to restrain from making payments and deductions for the new payroll taxes. He won in the Circuit Court, but lost in the Supreme Court.

The Supreme Court finally decided that the tax was legal as long as there was no mention of the program being insurance and all terms regarding contributions, benefits, contracts, and so forth be stricken from the bill. In other words, the payments workers made truly were nothing more than another form of income tax and the matching funds from employers were considered an excise tax. There's no denying this.

However, the politicians, bureaucrats, and the Roosevelt administration knew that they could not sell the American workers on this program if they made it sound like welfare. Destitute as workers were during the heart of the Great Depression, they still had pride and would never accept a program that they might interpret as making them wards of the state.

Politicians continued to use the words of insurance and pension programs and Social Security was explained and sold to the public as an insurance program—as it still is to this day.

Implied Contract

Briefly, an implied contract is one in which agreement of the parties is demonstrated by acts and conduct. It does not have to be written or signed and can be an oral agreement so long as there is demonstrable proof. What's more, the terms need not be expressly stated, but can be inferred from the conduct of the parties.

How does Social Security stack up as a valid implied contract? Do our politicians, bureaucrats, and so forth still talk about Social Security as an insurance plan? Would you like about a million quotes to that effect? How about the "Federal Old Age & Survivors Insurance trust fund" or the "Federal Disability Insurance trust," is that enough for you? Would daily statements from the U.S. Treasury to that affect hold up in court?

After 65 years of this, if the Supreme Court could possibly rule that Social Security isn't a valid contract between the government and America's workers then we would have to abandon all implied contracts and the entire idea of implied contracts. There isn't anything, no agreement between retailer and consumer, no agreement between employer and employee, no agreement between lawyer and client, or any of the myriad of implied cases already ruled upon that would be left standing. Throw them all out. Social Security is the granddaddy of all implied contracts.

Entitlement

Now, there's a word we don't hear as frequently from the Beltway Bandits, but it means if you paid for something specific then you are "entitled" to receive those specific goods or services that you already paid for. If Congress passes a law to put a tax on gasoline in order to raise money to repair Interstate Highways, then that money is supposed to be used on highways, it is not supposed to be used somewhere else. It's another form of implied contract.

To prove that the government, by its behavior, believes in entitlement contracts all you have to do is note that when they abscond, embezzle, steal, or run off with surplus entitlement money they pretend to "borrow" it. The government goes to great lengths to set up a sham and deceptions around the idea that it's possible to both spend and save the same money. They wouldn't do this unless they believed in the principle of entitlements.

Of course, we would all be better off if they just took the money and ran—as the Supreme Court decisions cited above supposedly permit. But that isn't what happens is it?

Oh no, we find that for every dollar they steal from entitlement surpluses, such as the $89 billion Social Security produced in surplus last year (fiscal 2002), the Beltway Bandits award us an equal amount of debt. The Social Security Trust Fund, that never holds anything but debt, now accounts for 21.3 percent of the national debt. Is that sufficient to establish an implied contract?

And worst of all, the government commits the absolutely ludicrous act of piling annual interest on top of this debt. It doesn't cost them anything to do this since there's no real money involved. They simply hand the trust fund more bogus bonds adding to our individual indebtedness. But as consistent behavior doesn't it drive the final nail into the fact that the government believes it has an implied contract with America's workers?

So when you hear nitwits trying to tell you that Social Security "really isn't your money" or that it's merely a "social contract" between a benevolent government and workers, tell them to stick it. Tell them that you are far too busy with reality to play games in semantics. And remember Ronald Reagan's definition of an economist as "a person who notices something happening in reality and wonders if it will hold up in theory."