WASHINGTON — Does Social Security meet the definition of a Ponzi scheme? The Securities and Exchange Commission says Ponzi schemes involve “the payment of purported returns to existing investors from funds contributed by new investors.”
Check!
Social Security pays benefits from funds contributed by younger workers.
The SEC says Ponzi schemes “require a consistent flow of money from new investors ...”
Check!
Benefits enjoyed by beneficiaries are dependent upon contemporaneous payroll tax revenue, not returns on investments in a trust fund.
The SEC says, “In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors.” Check! Supporters of the current structure, such as President Barack Obama, seek new Social Security taxes on workers earning over $106,800.
In major ways, Social Security is a Ponzi scheme.
To be sure, defenders of Social Security claim it isn’t, and there are differences. Social Security is mandatory, for example, while Ponzi schemes are not.
And when a Ponzi scheme is about to collapse, it can’t raise your taxes. But both take your money away from more productive investment opportunities and endanger your principal.
Admittedly, there are a few other differences.
If you manage to get some of your principal out of a Ponzi scheme, it’s yours. Social Security benefits are taxed.
And if you apply for benefits after age 62 but before full retirement age, and continue working, perhaps part-time, you have to give the government back $1 of every $2 in benefits after you earn $14,160 in a year.
Charles Ponzi was a rogue, but even he didn’t try to penalize people for honest work.
The Social Security Administration, attempting to differentiate its program from a Ponzi scheme, says: “The problem with Ponzi’s investment scheme is that it is difficult to sustain this game ...” No kidding. But the Social Security game is similarly difficult to sustain.
The Social Security and Medicare Board of Trustees, in its 2011 “message to the public,” says, “Projected long-run program costs for both Medicare and Social Security are not sustainable under currently scheduled financing ...”
Social Security claims it isn’t running a Ponzi scheme because it has “sustained its game” for decades, while Ponzi’s lasted just seven months.
I say, try bragging about how long you’ve lasted after you’ve covered the full benefits of all 76 million retired baby boomers. If you can.
“Pay as you go” programs like Social Security may be set up with the best of intentions, but they don’t work long-term when the number of people paying in keeps getting lower relative to the number of people taking money out.
There are ways to fix Social Security to the benefit of all. Guarantee full benefits to people at or near retirement. Allow younger workers to invest most of their payroll taxes in conservative, regulated investments that grow. Provide a government floor benefit so lower income workers can be assured of adequate benefits. And raise the full Social Security eligibility age to 70 or higher, reinvigorating the concept that workers should be saving money to retire.
When Franklin Roosevelt signed Social Security into law in 1935, average life expectancy was 61.7 years and the Social Security retirement age, 65, was 3.3 years later. By 2006, life expectancy was 77.7.
If we used the same reasoning now that Roosevelt used then, we’d have a Social Security full eligibility age of 74.4 today.
Yet today, the most common age for people to start receiving Social Security benefits is 62 — not 74 — and this contributes to the program’s unsustainability.
If Social Security is not a Ponzi scheme, it’s close. Too close. It’s past time for Americans to seriously discuss, and then adopt, fundamental change to our Social Security system.
• Ridenour is chairman of the conservative National Center for Public Policy Research.
Comments (7)
Add commentIs she writing this from prison?
She should be, after laundering charitable donations to Jack Abramoff's fake 'charities', which he used to bribe congressmen.
A quick scan of her claims above show major flaws. For instance: "If you manage to get some of your principal out of a Ponzi scheme, it’s yours. Social Security benefits are taxed."
Actually, no. If you get your principal out of ANY investment it's taxed - either before you put it in, or after you withdraw the gains. In that regard social security is no different - you didn't pay income taxes on your contributions, nor your employer's contributions.
whew! thanks for the lesson,
whew! thanks for the lesson, im glad to know that the money i have been paying my adult life and will continue to pay for the next 30 years is going to be there when i need it!
Missed the point
The writer conveniently skips over the main reason that the social security fund is depleted. I suspect that she has deliberately done this to further her agenda. Social Security is short of money because for decades the funds paid into social security by hard working americans have been spent by the government. Stated differently, the government spent the money and put an IOU into the jar. Had the money been protected, invested and kept separate there would be so much money accumulated that there would be no question about solvency. So the government stole the money and now wants to renege on the contract with the people. This makes the writers allegations of a "ponzi scheme" even more insulting and is completely false. Social security can be fixed but not by the payroll tax suspension that Obama supports.
IOU?
dingdong, please see my response in the rebuttal article. Social security funds WERE invested in government securities, the same place China and lots of other countries and retirement funds invest their money for safe keeping.
If our IOU to China is valid, then so is our IOU to social security. If the IOU is worthless, then our debt to China is worthless as well and our national debt is zero.
Perhaps you would be happier if our social security contributions were invested in hedge funds or derivatives? That's really what this author is pimping - Wall Street and the big banks want to get their hooks into all that taxpayer money.
I would be happy if the
I would be happy if the nanny-state would let me invest MY money myself.
But the control freaks, I mean the Dems can't allow individual freedom to survive. It would screw up all their social engineering, i.e. making as many Americans dependent on the nanny-state as possible .
Opinion for hire
This author has a long history of writing whatever people pay her to think. In the past she has written pro- tobacco opeds for cigarette companies, anti-climate change opeds for energy companies, and pro-sweatshop opeds for Jack Abramoff. Now she is writing Social Security privatization opeds for Wall Street. She has zero credibility She may have been able to get rich by being an opinion for hire but the rest of us will really need Social Security. Letting corrupt Wall Street skim off the 20% of SS would be crazy.
Medicare
He is a quick way to see if someone is making a valid argument about Social Security. Medicare has a huge funding gap and Social Security has a small funding gap, so if an author intentionally combines the two to claim that Social Security AND Medicare are not sustainable, as this author does , then they are trying to bamboozle you not educate you.
ARTCLE
This is another scare tactic by the Republicans! A recent article in the AARP news letter says the SS is not going broke. Why do the Republicans continue to want to mess with something that has worked for years?