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Cutting “Entitlement Programs” to Reduce Federal Deficit

By: Andrew J. Powers; Mahopac, NY

 Although I am not an attorney I consider my self to be adequately educated and have enough common sense to say to Congress, “Don’t you dare mess with my Social Security “entitlement benefits” as this is my money-I earned it-and not only did you borrow it without my permission, now that you can’t repay it, if you change the benefits law you are committing a breach of contract and thereby stealing my money”

Entitlement program

The term “entitlement program or entitlement benefits” has, in recent years, taken on a negative connotation in certain circles. The definition of the phrase entitlement program is rather simple, it is

The kind of government program that provides individuals with personal financial benefits (or sometimes special government-provided goods or services) to which an indefinite (but usually rather large) number of potential beneficiaries have a legal right (enforceable in court, if necessary) whenever they meet eligibility conditions that are specified by the standing law that authorizes the program. The beneficiaries of entitlement programs are normally individual citizens or residents, but sometimes organizations such as business corporations, local governments, or even political parties may have similar special "entitlements" under certain programs. The most important examples of entitlement programs at the federal level in the United States would include Social Security, Medicare, and Medicaid, most Veterans' Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price support programs.

Notice the words “legal right” (enforceable in court if necessary). Simply looking at the basic concept as taught in Business Law 101, the United States Uniform Commercial Code (UCC) basically states that a contract exists (regardless of if it is verbal or written) at such time as certain elements exist. These elements are Consideration, Offer, Acceptance and Legal Liability (“COALL”).  

Social Security and Medicare Benefits are “Entitlement” benefits as described above. Considering the UCC definition of Contract, these benefits are contractual to the extent they coincide with the law in effect at the time that the transaction occurs. Although I am not an attorney, I would say that the controlling factors here would be the existing legislation provisions in effect at the time of consideration, or when the money was paid into the System. As regards offer and acceptance, these are mandated pursuant to the provision of the Federal Insurance Contributions Act (or successive legislation) in effect at the time of contribution as since 1935 (When the Social Security Act (sometimes referred to as Old Age Pension in previous years)  as contributions to the “Fund” are mandated by law to be made by both the employee and his or her employer. So far we have “consideration (IE money), offer and acceptance, and as far as Legal Liability the law in effect at the time that the contribution is made to the fund states who is “entitled” to what benefits, at what amounts, at what age, or other conditions, etc.

Thus, as I see it, every time an employee and employer make a contribution to the fund, the provisions of the law in effect at that time are applicable and contractually enforceable. For example, if the law at the time that we worked and contributions were made to the fund was that at age 65, a participating person would be entitled to certain benefits, that should be an enforceable contract.

However the U.S. Congress, who enacts legislation, seems to conveniently disregard this simple fact and while most people disregard the potential breach of contract and violation of law, no one, not even our attorneys, see fit to challenge these illegal laws which are a breach of contract.


In addition to the “old age pension” provisions mentioned above, the Social Security Act provided for certain medical insurance benefits to be administered as Medicare. Medicaid is a state program while Medicare is a federal program, however lately I have been hearing people on the media and in government (supposedly educated intelligent people) constantly refer to the U.S. Congress considering amendments to entitlement programs such as federal social security (old age pension) and medicAID. What am I missing here? Why is the U.S. Congress considering changes to a state administered program?



When the Social Security Act was first legislated in 1935 it was provided that a stipulated amount would be contributed to a Special Purpose Fund and pursuant to the Federal Insurance Contributions Act a contribution (tax) would be required by each employee and his or her employee based on a percentage of compensation paid. As a Special Purpose Fund the monies were restricted in their use solely for the purpose intended. Basic municipal fund accounting principles dictate that a government (or municipal) agency is required to maintain a General Fund for overall operations and Special Purpose Funds for specific activities. Special Purpose Funds were “funded” by monies specifically intended for the purpose for which the fund is created and General Funds are funded through means such as income taxation or say in a private school district through tuition.

Over time, however, increased government spending due to either government expansion, wars (such as the Korean and Vietnamese conflicts), special “earmark” or “pork” spending or other public assistance legislation cause a deficit in the General Fund Budget and in order to meet cash demands, monies were “borrowed” from the once protected Special Purpose Social Security Fund. Thus a violation was committed which may possibly have been illegal, it was in a sense a morally criminal act by the government in that the once overfunded Social Security Fund is now depleted and there are insufficient funds in the general fund to meet the “entitlement” benefits demands.

In summary, by allowing the Treasury Department to borrow money from our social security fund, which now cannot be repaid, a breach of contract was committed by our Congress and government for which no one has yet called anyone to task, and now so called “conservative” elected legislators are looking to enact amended legislation which will violate the contract in effect at such time as we and our employers contributed (were taxed) to the Social Security Fund.

A Word (or two) About Taxes

At the time that the Social Security and FICA Acts were enacted, social security benefits, to which workers who contributed as a deduction (tax) from their salary (which was also subject to income tax) was not subject to income tax when the benefits were paid. Why? The answer is simple, the law states that you cannot be taxed twice on the same income. As the money (tax) contributed to the Fund was subject to income tax originally, it could not be taxed a second time. But once again government overspent and needed more revenue to make up the difference so Social Security benefits are now (subject to certain limitations) subject to income tax. Thus some or all of the benefits are “double taxed”. What is not double taxed however is the money that the employer is required to contribute as that is deducted by the employer when paid as compensation to the employee but not taxed to the employee at the time that the money was earned. However this fit into the purpose of things based on the executive intent of President F.D. Roosevelt and the U.S. Congress at the time.

However this brings me back to the concept that the “entitlement benefits” are OUR MONEY. We earned it. It was a component of the compensation paid to us by our employers for which they received a deduction from their business tax return as such.


Politicians like to speak about so called loopholes in the tax law/. The simple truth is there are no loopholes. If there were they would have been "closed" years ago. I have been been a tax specialist for 40 years during which time there have been just as many amendments or corrections to the U.S. Tax Code. In 1986 the IRC was entirely revamped as it was in 1954 and the Internal Revenue Code (IRC) of 1954 became the IRC of 1986. Tax laws were legislated for a reason, especially the international laws. What are often called "loopholes" by those uneducated in income taxation were intended by Congress to maintain compatibility with other global businesses or employees, to prevent double taxation, encourage business to expand spending on capital or create jobs, stimulate the economy, etc. The President often talks tough about closing the "international tax gap" but he is an attorney and he knows why tax laws exist as they do and if you review his income tax return he pays the least amount of tax he is legally obligated to do so, just as we all do, and he taxes maximum advantage of the Foreign Tax Credit to ensure that he does not pay double taxation. So when you hear Media or Political Rhetoric regarding "Tax Loopholes" it is probably from someone who has no idea as to what they are talking about and are reading from a script or regurgitating what someone else said or told them to say.


Now if Congress really wants to close the budget deficit let them first start by replacing their defined benefit pensions with defined contribution plans for which they pay the lion's share of the contribution. Let them pay for their own medical insurance. He who holds the keys to the Treasury controls the power and rewards themselves in a manner that is best for them.

How is it that we work our entire lives and many have nothing to show for it while an "anyone" elected to Congress gets a pension after only one term, plus medial and other benefits and perks.

So Congress, start first by looking in the mirror, then look at our involvement in military operations for which there is no purpose or happy ending and stop the funding for those operations as your predecessors did in 1973 regarding Vietnam, eliminate wasteful government programs that don't work.....maybe even listen to your constituents!




Any way you spin this, the fact is that the money to which we are “entitled” is our money as we earned it and just as if we put the money in a bank or bought a government bond, the annuity to which we are “entitled” is OUR MONEY and I believe it would be a criminal breach of contract should they try to deprive us of our money by once again changing when we can receive our money or the amount that we can receive. In fact, I think all Americans should have a right to demand the full annuitized value of the money on demand.


What say you?  


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