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 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.
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.
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.
Amy Ridenour is chairman of the conservative National Center for Public Policy Research.
