Social Security is not your property, and Flemming v. Nestor said so

Every payroll stub carries a line that says FICA, and every politician who wants your vote tells you that you "paid in" and "earned" your benefits. It is a comforting story. It has a dependable ring to it, like a bank statement, and it is false in the one place where falsehood matters, which is the courtroom.

In 1960 the Supreme Court looked straight at the question of whether a worker who has paid Social Security taxes for years owns a legal right to the benefits. The answer was no. Not "not exactly," not "it depends," but no. The case is Flemming v. Nestor, and almost nobody who depends on Social Security has ever heard of it. I think every American should read it, because it tells you what the promise is really worth, and who is holding it.

The point of this post is not to frighten anyone. It is to make a constitutional argument: a republic should keep its promises, but a promise that exists only at the pleasure of the next Congress is a promise that citizens must watch, guard and demand. We will go through the facts, the question, the holding, the reasoning, the dissents, the earlier case that made it possible, and what it means.

The facts

Ephram Nestor was born in Bulgaria and came to the United States in 1913. He lived and worked in this country for decades. In the 1930s he was, for a time, a member of the Communist Party, from 1933 to 1939. That membership was lawful when it happened. Nestor left the party, and he continued to work and to pay Social Security taxes for nearly two decades.

In 1954, Congress passed an amendment to the Social Security Act, adding what became Section 202(n). It provided that when a person is deported under certain provisions of the immigration laws, including deportation for past membership in the Communist Party, his old-age benefits end. The provision applied to deportations on grounds that were based on conduct that had been lawful at the time, and it applied to people who were already within the program.

In 1955 Nestor became eligible for retirement benefits. In 1956 he was deported to Bulgaria under the immigration laws on the ground of his former party membership. The Social Security Administration then terminated his benefits under Section 202(n). Nestor's wife, who had remained in the United States, was notified, and Nestor sued. A federal district court ruled for him, holding the termination unconstitutional. The government, in the person of Arthur Flemming, the Secretary of Health, Education, and Welfare, appealed to the Supreme Court. That is how the case acquired its name.

The question

The question was whether the termination of Nestor's benefits deprived him of property without due process of law, in violation of the Fifth Amendment, which provides that no person shall "be deprived of life, liberty, or property, without due process of law." It also raised whether the 1954 provision was an unconstitutional punishment, because it imposed a penalty for conduct that was lawful when it occurred.

Put in plain English: did Nestor own his Social Security benefits? If he did, the government could not take them without due process. If he did not, then Congress was free to change the terms.

The holding

On June 20, 1960, the Court held by a vote of five to four that Section 202(n) was constitutional and that Nestor's benefits could be terminated. Justice John Marshall Harlan wrote the opinion for the Court.

The core holding is that the right to Social Security benefits is not an accrued property right, and that a worker's covered employment and payment of the payroll tax do not give him a contractual right to receive benefits in the future on any particular terms. The benefits are a statutory entitlement, and the statute can be amended.

The reasoning

Justice Harlan's opinion rested on a few connected ideas.

1. The program is a statute, not a contract. The Social Security Act itself contains a provision, Section 1104, reserving to Congress "the right to alter, amend, or repeal any provision of this Act." Congress wrote the power to change the law into the law. A person who joins the program does so against the background of that reservation.

1. The taxes are not premiums. Harlan rejected the analogy to a privately purchased annuity. The Court said that a covered worker's noncontractual interest "cannot be soundly analogized" to the interest of an annuity holder, whose right rests on contractual premium payments, and that eligibility and benefit amounts do not "in any true sense depend on contribution to the program through the payment of taxes" (for a later fight over what counts as a tax, see John Roberts Called the Mandate a Tax, and Conservatives Still Argue About Why). The system is a social insurance program in which the benefits paid to one generation are funded by the taxes of another, and an "accrued property right" would, in the Court's view, strip it of the flexibility it needs to adjust to changing conditions. The Court's own sentence is that to engraft upon the Social Security system a concept of "accrued property rights" would deprive it of that flexibility, and the opinion is public and worth reading in full.

1. Congress has the power under the general welfare clause. Article I, Section 8, Clause 1 gives Congress the power "To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States." The Court treated Social Security as a legitimate exercise of that power, and a legislative choice about how to spend for the general welfare is entitled to deference unless it is arbitrary. The Court found that Congress could rationally decide that it did not want to pay benefits to a person deported on these grounds.

1. The provision was not punishment. The Court rejected the argument that terminating benefits was a penalty barred by the ex post facto clause, the bill of attainder clause or the guarantee of a trial. Harlan reasoned that the sanction was the denial of a noncontractual benefit, with no affirmative disability or restraint, so those protections did not apply.

I want to be fair to the opinion. It does not say that Congress may act with no limits. It says that due process bars a statute only if it manifests "a patently arbitrary classification, utterly lacking in rational justification," and that the statute passed that low bar. Still, that is a very low bar, and it means that the limits on Congress's power to change benefits are political, not judicial.

The dissents

Four Justices dissented. Justices Black, Douglas and Brennan each wrote an opinion, and Chief Justice Earl Warren joined Brennan's.

Justice Black's dissent was the most striking. He argued that the termination of Nestor's benefits was a punishment imposed without a trial, for conduct that had been lawful when it occurred, and that it violated the Constitution's bans on ex post facto laws and bills of attainder. He pointed out that Nestor had paid into the system for nearly two decades, relied on an earlier case, Lynch v. United States, for the idea that the government cannot repudiate its promised insurance payments, and objected to the idea that the government could tell a man he had paid for something and then take it away for his past associations. The majority's answer was that Nestor's interest was noncontractual and not an accrued property right.

Justice Brennan's dissent, joined by the Chief Justice and Justice Douglas, argued that Section 202(n) targeted particular people rather than regulating an activity, and that the Court had leaned on the presumption of constitutionality instead of asking whether the cutoff served any purpose of the Social Security program. On that view the cutoff was punishment, which required a judicial trial. Justice Douglas, in his own opinion, treated benefits as earned through contributions, not as gratuities. Read together, the dissenters saw the program more like insurance: a person who pays in good faith acquires a stake, and the government cannot cancel it because it dislikes his past.

I think the dissenters were more attractive in sentiment than the majority was in law. The majority's reading is the one that fits what the Social Security Act says, and what the Act says matters more than what politicians say on the campaign trail. And still, the dissenters put a finger on the moral problem. A government that taxes a man for nearly two decades and then tells him he has no property in the thing he paid for has made a bargain that is hard to defend as a bargain.

The case that made it possible: Helvering v. Davis

Flemming v. Nestor stands on an earlier ruling. The Social Security Act was signed on August 14, 1935. In 1937 the Supreme Court upheld its old-age benefit provisions and the employer tax in Helvering v. Davis, in an opinion by Justice Benjamin Cardozo. Cardozo's reasoning was that Congress may spend for the general welfare, and that the choice of which welfare to serve belongs to Congress unless that choice is clearly wrong. The opinion noted that the broad view of the spending power advocated by Hamilton had prevailed over the narrower view associated with Madison.

That 1937 decision matters for conservatives, and here I will speak plainly. It endorsed a broad reading of the general welfare clause, the reading associated with Alexander Hamilton, over the narrow reading associated with James Madison. Madison argued that the clause was not a free-standing grant of power but a statement of the purposes for which Congress could use the specific powers that followed. I explored that dispute in Madison and Hamilton Fought Over Two Words, General Welfare, and We Still Pay. In Helvering, Hamilton won. And once the clause is read broadly, the power of Congress over the program is broad too, which is exactly what Nestor later confirmed. If Congress may create the program as a discretionary exercise of the spending power, it may also revise the program as a discretionary exercise of the spending power.

What the ruling means for promises

Let me spell out the consequences, because this is where the case matters for your life.

1. Benefits are a statutory promise. They are what the law says today. They are not an account in your name. The program is financed on a pay-as-you-go basis, a point I laid out in What the Social Security and Medicare trust funds hold, and depletion day, and the trust fund holds Treasury bonds rather than a pot of invested savings. Put the legal point and the financial point together and the picture is clear: your protection is political, not proprietary.

1. Congress can cut, tax or reform benefits. It has done it before. The 1983 amendments raised the retirement age and brought some benefits within the income tax, and no court stopped it. If the trust funds run short, the same Congress that wrote the formula can rewrite it.

1. The cure for a broken promise is the ballot box. Since the courts will not enforce a property right in benefits, the only enforcer is the voter. That is a sobering fact, and it also explains why politicians in both parties treat the program as the third rail. They fear the voters, and rightly so, because the voters are the only real guarantee.

1. Promises made by politicians are worth what the law behind them is worth. When a candidate says "your benefits are safe," ask which statute makes them safe and for how long. A promise that depends on Congress's continued goodwill is a promise on a short lease.

The steelman and the answer

The strongest reply to everything I have said is this: The ruling is correct, and so what? Congress has never actually taken away anyone's earned benefits in a way that surprised them, and the political reality is that retirees are the most powerful voting bloc in the country. The legal distinction between a statutory entitlement and a property right is a technicality. In practice the benefits are as secure as anything government does, and probably more secure than most private pensions.

There is truth in that. Politically, benefits are well defended, and the Nestor decision has not led to mass cancellations. But I have three answers.

First, a right that is protected by politics only is protected only while the politics hold. The demographic pressure I described in the trust-fund post is real, and a Congress facing a hard choice may choose differently than the Congress of an easier year.

Second, the legal point shapes the honesty of the debate. If benefits were property, a reform that raised the retirement age for people who were 50 would be an unconstitutional taking, and no one could discuss the options. Because they are statutory, reform is legally possible. The question is whether it is fair and wise. And that is a question for citizens, who ought to be told the truth about it. I would add that fairness argues for generous notice and phase-in for those near retirement, as the 1983 law did.

Third, and this is the moral heart of it, a government that taxes a worker for decades while telling him he has an account should say what it means. The word "contribution" implies ownership. The law says otherwise. A conservative believes in plain speech, and in keeping the citizen informed about what the state owes him and what it merely hopes to pay. Our Founders insisted that the people are the principals and the government their agent. An agent that is free to rewrite the terms of the arrangement must at least be honest about it.

The Founding measure

The Declaration of Independence says that governments derive "their just powers from the consent of the governed." Consent is meaningful only if it is informed. A worker consents to a payroll tax believing that he is buying his retirement. If the actual legal arrangement is that he is paying for the retirement of the generation ahead of him and hoping for the same from the generation behind, the consent is built on a misunderstanding.

That does not mean the program is illegitimate or that it should be abolished. It means citizens should know what they have. It also gives weight to the argument for reforms that give workers a clearer ownership stake, such as personal accounts that belong to the worker, which would make the property right real instead of rhetorical. I put that forward as a policy idea to be debated, with its risks and costs, and not as a settled answer. It is the kind of question that the debate desk exists for.

You can read the full text of the case and of Helvering v. Davis in the records of the Supreme Court, and you can see how the Court has treated related questions on the courts page.

The case in brief

1. In Flemming v. Nestor (1960), the Supreme Court held five to four that a worker has no contractual or accrued property right to Social Security benefits, so Congress could end the benefits of Ephram Nestor after his deportation.
2. The reasoning rested on the Act's own reservation of the power to alter or repeal, on the nature of payroll contributions as taxes, and on the broad general welfare power upheld in Helvering v. Davis (1937).
3. Four Justices dissented, Warren, Black, Douglas and Brennan, arguing that the termination was a punishment without a trial and, in Black's and Douglas's view, took benefits the worker had paid for.
4. The result is that Social Security promises are statutory and political, so the only enforcement is the voter, and honest government should say so plainly.
5. Reform is legally possible, which is why citizens must demand that it be fair, honest and early, with generous notice for those near retirement.

What you can do: read Section 1104 of the Social Security Act on Congress.gov, then ask each of your senators and your representative, in writing, what they would change about the program and when.