by Chris Messner

Created on: February 16, 2009   Last Updated: April 21, 2010

The basic premise of America's Social Security program is a sound one. Under Franklin D. Roosevelt, the federal government began deducting payroll taxes from most workers to fund an insurance program to provide a little something for people and their families after retirement.

When first implemented, in 1935, Social Security was a "fully funded" program, meaning the deducted money was set aside in an actual account for the individual taxpayer. In other words, even though there wasn't then, and never has been, a statutory requirement for the government to segregate Social Security revenue from income tax revenue, Uncle Sam set up an account for John Doe, gave it an identifying 9-digit account number, kept the money it took from him in that account, and used the money to send Mr. Doe a monthly check after he retired at age 65.

What a great idea! America was slowly emerging from the Great Depression, during which millions had suffered greatly through job loss. Older Americans who had retired and did not have a pension, or lost their jobs, were basically destitute, so the concept and implementation of a national insurance program to provide retired folks with a basic standard of living met with general public approval.

Back then, this was a no-brainer. It was both an easy way to help old folks and an easy way for Uncle Sam to get his hands on a lot more money from taxpayers and employers.

There were at least a couple of cases which made it to the United States Supreme Court in 1937, challenging the constitutionality of Social Security, and the law's failure to provide for the segregation of Social Security payroll taxes from income tax revenue, but these challenges were dismissed by the Court.

So, where did the program go wrong? Well, it didn't happen all at once, but, gradually, the government made additions and changes to the program which greatly increased its number of beneficiaries and, therefore, required lots more money to administer.

But the big blow came in 1939. That's when the government abandoned the "fully funded" system and changed it to the current "pay-as-you-go" system. This meant that Mr. Doe's payroll taxes were no longer held in an account for him alone. Instead, that money was used to pay current beneficiaries, and any surplus collected by the government would be placed into the Social Security Trust Fund to be used for payments to future beneficiaries.

Sounds great, right? It made sense for the times and for decades thereafter. But a couple

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