The Contributory Principle We turn now to a consideration of the contributory principle in social insurance, what it means and what it requires. We shall find that, while its elements are not difficult to identify, each of them leads us into matters of degree and matters of compromise such that it is impossible to mark precise points beyond which the principle is lost. This difficulty in drawing neat dividing lines makes it all the more important to understand the issues that lie behind the compromises, in order that one may judge the wisdom not only of each essential decision by itself, but also and especially, the cumulative effect of the many basic decisions that go to make up and define the system.
It would, of course, be possible to finance a system of old-age benefits either without a specifically identified tax source—that is to say, from "general revenues"—or from any one or more particular taxes that yielded the requisite funds. Dr. Townsend proposed a gross receipts or "transactions" tax. State and local governments use a variety of tax sources to finance their share of the cost of public assistance. But none of these earmarked taxes is "contributory" in the sense in which the term is used in describing social insurance.
The pay-roll tax on employees and the self-employment tax, on the other hand, are contributory in the strictest sense, since they are paid by the very individuals who are to be insured and in direct proportion to the earnings on which their insurance rights are based. The pay-roll tax on employers is also contributory in that, measured in like fashion, it is imposed as an incident of the employment relation on the theory that human obsolescence, like unemployment and industrial accidents, should be made in some part a cost of employing labor.
The question is sometimes put whether the payments commanded by the statute are, in truth and in fact, contributions or taxes. The question is meaningless. A tax is itself a compulsory contribution; usually, to be sure, for the general support of government, but not infrequently, as for example school taxes, earmarked for a particular governmental expenditure. The social security taxes are taxes, as the Supreme Court has held, and they are also compulsory contributions.
To say that these payments are taxes is to say that, constitutionally, they could be used for other governmental purposes as well as for the payment of social insurance benefits, but it is not to say that politically or morally they could be so used. For the same reasons that Congress would not have imposed them for any purpose other than social insurance, they could not be expected to remain long on the statute books if they were diverted to other uses. Congress, moreover, has gone about as far as it constitutionally can to commit their proceeds to the insurance system. There is no real danger of outright diversion, but one of the difficult problems is to mark the point at which legitimate use ends and diversion begins.
What, then, are the elements of the contributory principle in old-age insurance that must be preserved if the system is to endure? What are the elements that make, out of two statutes each indefensible if it stood alone, a rational and useful whole? The Promise of Future Benefits The first element is that benefits must be payable, and there must be assurance that they will continue to be payable, as a matter of legal right, in amounts fixed by law, upon the attainment of eligibility and the happening of those events which the law specifies as conditions of payment.
If the promise of future benefits induces the people to accept a form of taxation they would not otherwise accept, then the promise must have substance and solidity, and the people must know that it has. Such a promise involves the government in a fiscal commitment of huge proportions, but unless we are prepared to undertake this commitment we had better abandon the idea of old-age insurance altogether.
To avoid this great commitment it has sometimes been suggested that the law provide merely that such benefits will be paid and in such amounts as Congress may from time to time in the future find expedient. This course would be tantamount to a repeal of the insurance system, for surely wage earners would not long be willing to buy such a pig in a poke.
There is no question at all, though it has occasionally been denied, that the law as it now stands makes benefits payable as a matter of legal right. The statute commands the administering agency to pay them to all qualified applicants, and authorizes appeal to the United States courts if payment is denied. A payment that can be enforced in court would seem to meet the most rigorous definition of a "legal right." Confusion on this point has arisen from the fact, of which much has been made by some critics, that the right is statutory rather than contractual in nature and that Congress has reserved the power to alter, amend, or repeal the statute. It would be obvious folly, even if it were constitutionally possible, to put old-age and survivors insurance outside the power of future Congressional amendment. We could not afford to give to a system so vast and so complicated the rigidity of private insurance contracts. Congress must remain free, for example, to increase contribution rates if present cost estimates should prove to have been too sanguine. In 1939 Congress repealed the "money back" clause in the original act, which had provided for lump-sum payments to the estates of contributors who died before reaching sixty-five, and substituted the more valuable and socially more useful monthly survivors' benefits. Each extension of coverage extended the scope of the "work clause," which withdraws benefits from recipients who return to work, but which was limited to work in covered occupations. In 1954 Congress further extended this clause to the few remaining uncovered occupations and also to work outside the United States; and denied benefits to persons deported for illegal entry, conviction of crime, or subversive activity. Changes and adjustments in particulars will surely be necessary in the future, as they have been in the past.