"The second principle is that before any expenditure of public funds can be made, there must be an act of Congress appropriating the funds and defining the purpose for such appropriation. Thus, no officer of the Federal Government is authorized to pay a debt due from the U.S., whether or not reduced to a judgment, unless an appropriation has been made for that purpose."See also Reeside v. Walker, 52 U.S. (11 How.) 272 (1850); Cincinnati Soap Co. v. United States, 301 U.S. 308, 57 S.Ct. 764 (1937); and Office of Personnel Management v. Richmond, 496 U.S. 414, 110 S.Ct. 2465, 2471 (1990). In National Association of Regional Councils v. Costle, 564 F.2d 583, 586 (D.C.Cir. 1977), that Court elucidated this principle by stating:
"Government agencies may only enter into obligations to pay money if they have been granted such authority by Congress. Amounts so authorized by Congress are termed collectively 'budget authority' and can be subdivided into three conceptually distinct categories -- appropriations, contract authority, and borrowing authority. Appropriations permit an agency to incur obligations and to make payments on obligations. Contract authority is legislative authorization for an agency to create obligations in advance of an appropriation. It requires a subsequent appropriation or some other source of funds before the obligation incurred may actually be liquidated by the outlay of monies. Borrowing authority permits an agency to spend debt receipts."
It is easy to demonstrate the operation of this provision of the Constitution and its application to government contracts. Suppose the feds desired to build a new courthouse at a cost of $200 million. An agency in charge of such a project could theoretically "contract" with a construction company to build this structure. However, until Congress actually appropriates money to pay for construction, there is no contract. Even if the contractor in this example incurred lots of costs preparing to build this courthouse which ultimately does not get built because of lack of funds, he has no claim against Uncle Sam for breach of contract. The same principle applies to every other government contractor, whether aerospace, military, et cet. Government contracts are unique and different from private sector contracts due to this constitutional limitation upon the power to contract.
Is Social Security a contract? A private insurance policy is clearly a contract because the policyholder makes a promise to pay money to the insurance company, which in turn agrees to likewise pay the policyholder if certain contingencies arise. These "promise to pay" elements are essential for a contract, but they simply are not present with Social Security. First, Social Security "payments" are not premium payments, but are taxes instead. Secondly, there is no corresponding and enforceable "promise to pay" from the Social Security Administration to its "beneficiaries." As noted above, government contracts are very special and require an appropriation from Congress before money can be expended and a contract made. Regarding Social Security, the only "beneficiaries" who have any claim against the public treasury are those for whom Congress has already made an appropriation, which can last no longer than a year. The rest of the Social Security claimants in America have no enforceable claim on public funds, and all they possess is a "political promise," upon which Congress can renege at any moment. If Congress decided tomorrow to cut off all Social Security benefits, nobody would have any claim for payment. Thus, Social Security has never been and is not now a contract. See Flemming v. Nestor, 363 U.S. 603, 610, 80 S.Ct. 1367 (1960)("It is apparent that the noncontractual interest of an employee covered by the Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments"); Richardson v. Belcher, 404 U.S. 78, 80, 92 S.Ct. 254, 257 (1971) ("The fact that social security benefits are financed in part by taxes on an employee's wages does not in itself limit the power of Congress to fix the levels of benefits under the Act or the conditions upon which they may be paid"); Califano v. Goldfarb, 430 U.S. 199, 210, 97 S.Ct. 1021, 1028 (1977) (Brennan J.) (plurality opinion) ("Congress has wide latitude to create classifications that allocate non-contractual benefits under a social welfare program"); and United States Railroad Retirement Board v. Fritz, 449 U.S. 166, 174, 101 S.Ct. 453, 459 (1980) ("railroad benefits, like social security benefits, are not contractual and may be altered or even eliminated at any time").
In 1953, a subcommittee of the House Ways and Means Committee conducted hearings for the express purpose of settling the question of whether social security was contractual in nature; see Hearings of November 27, 1953 entitled "The Legal Status of OASI Benefits," (Part 6). The witness at the hearing was Dr. Arthur J. Altmeyer, who held several offices in the Roosevelt administration. He was a member of the first Social Security Board, and by 1946 became the Social Security Commissioner, retiring in 1953. During this hearing, various parties stated that social security was not a contract:
At page 918:
"Mr. Altmeyer: * * * There is no individual contract between the beneficiary and the Government.
"Mr. Dingell: Congress knew that, did it not?
"Mr. Altmeyer: Yes, of course. I am sure it did.
* * *
"Chairman Curtis: The individual * * * has no contract? Is that your position?
"Mr. Altmeyer: That is right.
"Chairman Curtis: And he has no insurance contract?
"Mr. Altmeyer: That is right."
At page 937:
"Chairman Curtis: We came to an agreement on one of our major premises, that this was no insurance contract, and the words did not come from me. They were volunteered by Mr. Altmeyer."
At page 968:
"Mr. Winn: * * * Mr. Altmeyer, there being no contractual obligation between the Government and the worker, it follows, does it not, that the benefit payments under title II of the Social Security Act are merely statutory benefits which Congress may withdraw or alter at any time?"
At page 969:
"Mr. Winn (reading): ‘These are gratuities, not based on contract * * *. Moreover, the act creates no contractual obligation with respect to the payment of benefits. This Court has pointed out the difference between insurance which creates vested rights, and pensions and other gratuities, involving no contractual obligations, in Lynch v. United States, (292 U.S. 571, 576-577)."
At page 994:
"Mr. Altmeyer: I have answered your question, sir. If you will refer to section 1101, you will find, as you read into the record, that there are no vested rights, that Congress may create different rights * * *."
At page 996:
"Mr. Winn: We have also established that there is no insurance contract between the Government and the worker within a covered wage whereby the rights and obligations of a party are set; that is correct, is it not?
"Mr. Altmeyer: No. You did not establish that. That has been self-evident since the law was passed in 1935."
At pages 1013-14 (the Chair's concluding remarks):
"Chairman Curtis: Mr. Altmeyer, it is apparent that the people of the country have no insurance contract. That does not mean that I do not want to do my full part to do justice to them and to carry out and make good on the moral commitment that has been made to them. Yet, notwithstanding the fact that they had no insurance contract, it remains true that the agency under your direction repeatedly in public statements, by pamphlets, radio addresses, and by other means, told the people of the country that they had insurance. I think a number of people were misled by that."
The position asserted by Mercier that social security is a contract, visible or invisible, thus does not manifest itself in the decisions of federal courts. See also McLaughlin v. CIR, 832 F.2d 986, 987 (7th Cir. 1987)("The notion that the federal income tax is contractual or otherwise consensual in nature is not only utterly without foundation but... has been repeatedly rejected by the courts."); and United States v. Drefke, 707 F.2d 978, 981 (8th Cir. 1983). Contentions that driver licenses are contracts are baseless. See Hershey v. Commonwealth Dep't. of Transportation, 669 A.2d 517, 520 (Pa.Cmwlth. 1996); and State v. Gibson, 697 P.2d 1216 (Idaho 1985).
Mercier also had a
chapter of his work making some vague contention about
admiralty. There are lots of phony admiralty arguments being
promoted in the freedom movement, all asserting essentially an
argument that admiralty has invaded "inland", and "everything
is admiralty". I address that groundless argument here.
also made snide remarks that the money argument relating to
gold, silver and Federal Reserve Notes that is popular with
many is baseless, but I demonstrate otherwise here.
There are lots of
other flaws in Mercier's legal argument about Invisible
Contracts, but I will not address them here. What is important
is that Phil Marsh started an organization named the Pilot
Connection Society back at the end of the 1980s, and the
central legal argument that he promoted was based entirely on
Invisible Contracts. Mercier's "book" advocated that a citizen
should give King government a wide variety of notices
rescinding the "Invisible Contracts", and Marsh's organization
did precisely this for hundreds of people. Marsh was
prosecuted and convicted, and died in jail.