Posted on 09/14/2011 9:04:12 AM PDT by Kaslin
At the Republican presidential debate in Tampa, Fla., on Monday night, Mitt Romney said Rick Perry has needlessly "scared seniors" by calling Social Security "a Ponzi scheme." Romney, more sensitive to the anxieties of retirees, prefers to say "the American people have been effectively defrauded out of their Social Security" (as he puts it in his 2010 book "No Apology") because Congress has spent the program's surplus revenue instead of saving it to pay for future benefits -- the sort of crime for which bankers "would go to jail."
See the difference? Neither do I. Both the former Massachusetts governor and the current Texas governor understand that Social Security is a transfer program disguised as a retirement plan and that its frequently mentioned "trust fund" does not actually exist. Their spat over how exactly to characterize that situation is illuminating not because it reveals substantive differences between the candidates but because it shows how often these simple truths are overlooked.
The day of the debate, for instance, USA Today opined that "Social Security is most certainly not a Ponzi scheme" because Ponzi schemes "are criminal enterprises, which Social Security is not." Fact-checking Perry after the debate, CNN declared that "Social Security is not a fraudulent criminal enterprise designed only to benefit current participants in the program." Rather, "It is a legitimate government program meant to serve both current and future generations of retirees."
Digging a bit deeper, my colleague Shikha Dalmia observed that Social Security is in some respects worse than a Ponzi scheme, since participation is mandatory, money is diverted not only to earlier investors and the fund manager but also to various "programs for politically favored groups," and the con goes on and on, even after it is revealed. I might add that Ponzi schemes offer much better returns (initially).
At Monday's debate, Perry pointed out that Social Security "has been called a Ponzi scheme by many people long before me." It's true! And what did they mean by that?
As CNN helpfully notes, "The Securities and Exchange Commission defines such a scheme as 'an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.'" Social Security benefits likewise are funded not by returns on money that current retirees "paid into the system" but by payroll taxes collected from current workers. Yet the government misleadingly portrays Social Security as a pension program, periodically informing us about the retirement benefits we've "earned," as if our money is being saved and invested for us.
Don't be embarrassed if you've fallen for this scam. So has The New York Times. Last week, it tried to set Perry straight by reporting that "economists of all stripes agree" Social Security won't "exhaust the money in the trust fund" until 2037.
But as the Times itself conceded last year, this trust fund is no more than "an accounting device" that represents how much the government owes itself -- or, in other words, how much must be extracted from taxpayers to cover all the surplus Social Security money Congress has squandered over the years. The surpluses themselves are long gone, replaced by Treasury bonds that can be redeemed only through higher taxes or further borrowing (which eventually translates into higher taxes).
"This trust fund is an elaborate illusion cooked up by government magicians," Perry observes in his 2010 book "Fed Up!" In "No Apology," Romney agrees, calling the trust fund a "fiction that's often used to obscure the extent of the crisis."
Social Security's benefits already have begun to exceed its annual revenue, meaning the program is contributing to the deficit instead of making it seem smaller. By the 2040s, payroll tax revenue is expected to cover only three-quarters of promised benefits.
All of the possible solutions ultimately involve raising taxes or cutting benefits. But in settling on a particular fix, it is helpful to understand the true nature of the system we are reforming.
My husband says "they are criminals who have stolen our money"
They both are needlessly scaring seniors. Yet there is a problem.
There is a SSA trust fund and it is invested in U.S. Treasuries. Unless congress intends to default on it’s debt, the trust fund is securely invested in what is still considered the safest investment on the planet.
However the trust fund is not nearly big enough. If taxes were cut off, the trust fund would have enough to pay about 4 years of benefits for current retirees. It ought to have enough that together with expected interest income should cover the expected lifespan for current retirees plus enough to pay the earned benefits for all non-retirees in the future.
In other words, SSA is not completely an unfunded liability, but it is more unfunded than funded.
Unfortunately, regardless of the terms used, Ponzi scheme or fraud, EVERYONE takes the PC view that SS should be saved. For what?
This program is and always has been unsustainable and needs to die. We need to get all of the ‘Pubbies playing political correctness to grow a spine and propose letting SS die. Yes, a lot of people are going to be screwed if we do. But how is screwing a lot of people by killing the program different from what will happen by trying to save it? Either way, the people will get screwed and the politicians will politick the program.
IMO, we can compensate the people being screwed by killing SS by paying their retirement out of the Congressional pension fund. Congress stole the money and spent it on crapola, Congress can pay it back to the people they stole it from via their prized, non-SS pension fund.
Dude, there is no money in the "trust fund". The money was taken by Congress over the years. All that's left are IOU's that are funded through the general tax fund. The discussion on when the SS "trust fund" will run out is purely semantical. It's a calculation of when the funds collected to date (and stolen long ago) will equal what is ultimately paid out. At that point, since we pay out more in SS benefits each year than we take in, the "trust fund" will run a deficit each year unless and until Congress reforms it.
Hate to tell you this, Danny, but there isn't. Johnson opened the flood gates to rob SS of all of its funds when he declared his War on Poverty. If you walk into an SS office today, you won't find a lot of blue hairs waiting to be served, you'll find a lot of people on SS Disability getting paid for correctable medical conditions with other people's money (OPM).
SS is broke. The government only takes the taxes it confiscates from everyone's paycheck and turns it around and pays it out in a monthly SS benefit check. With the looming Baby Boomer retirement coming, given current SS receipts, subsequent generations will either see more of their income confiscated to pay SS benefits at current levels or the benefits will either have to be reduced to maintain payments, or it should be allowed to fail.
Congress, which has no collective stake in SS, has so screwed this up that it is now a major national scandal. The pile of IOUs currently residing in the SSA Treasuries you claim exist is about to topple over and kill anyone standing close to it.
And yes, I understand that the U.S. treasury doesn't have cash on hand to pay it's debt. Just like when you buy an IBM bond, IBM doesn't put the cash they receive in a vault and sit on it so they can pay you back. They invest it and pay you back out of the proceeds. The U.S. government pays it's debt out of future tax receipts.
That doesn't change the fact that SSA has a legal claim that the U.S. treasury will have to honor.
Keep in mind that SSA has to put the funds somewhere.
I know you think the printing of money is bad and outside of the normal growth that is necessary to keep the economy stable, I agree. But what if SSA actually had put the cash in a vault. And now suddenly brought it out and spent it. What would be the difference? The money supply would still be inflating by the same amount. The only difference is that the money supply would have been shrinking all along as SSA stuffed the vault full. And in response to that shrinking, guess what the Federal Reserve would have had to do, to prevent inflation. Yep, they would have increased the money supply to offset the vault suffing.
Fixed it.
Some people think SS is “broke” because its funds are held in Treasury bonds. In other words, the surplus of what workers have paid in is all lent to the government. Who knew? While banks sold bad mortgages and brokers sold bad stocks, US workers were investing their pensions in this patriotic way all along. They were nobly, or naively, willing to believe that the Treasury will pay them back.
Will it?
I suppose it must, or else the “full faith and credit” of the US will be worthless and the country will go bankrupt.
Read the trustee report.
Social Security can function at current levels and future projections for at least 25 years before benefits would have to be reduced. Even beyond that point it is funded out to 85 years with just a 23% drop in benefits.
It seems we have a little time to fine tune SS.
So what crisis are we even talking about?
The Social Security trust fund holds $2.7 trillion dollars of government bonds. Is the USA going to default on those bonds?
Incidentally, at present China owns only $1.2 trillion.
“Unless congress intends to default on it’s debt, the trust fund is securely invested in what is still considered the safest investment on the planet.”
They defaulted on it early this summer. It was one of the “emergency measures” taken to avoid exceeding the debt limit.
Uh...no. If taxes were cut off, the trust fund would have enough to pay about 4 minutes.
Those treasury bonds are an "I Owe Me", paid from the left hand to the right hand, and the left hand getting the money by putting a gun to taxpayers' heads and saying "give me cash now". THERE IS NO MONEY IN THE "TRUST FUND" - only treasury bonds, which are a promise to take the money out of taxpayer pockets.
You are mistaken.
Can you post a the “letter of default” from SSA to Congress?
I have seen no stories of the U.S. defaulting on its treasuries. Do you have a link to such.
The crisis is that no matter what stage of SS decline we’re at, the ONLY way SS money goes out is by allocating money - real money - coming in. Pretty soon there just won’t be enough. Even those vaunted Treasury Bonds are just a promise to take money from taxpayers and pay the bondholder back therewith.
It’s a “The Producers” situation: a deliberate over-selling of payback promises. When the investors come to collect their interest & principal, they’ll find that 100x as much in promises were made as in money available ... and that the ones who made the promises are long gone, leaving future generations obligated with the bill.
Well the Chinese hold about two trillion dollars of those “I owe me” bonds. Why don’t we just tell them we don’t want to honor their T Bills.
I’m half expecting them to say “we know you can’t pay us in cash, so how about you just drift your entire navy to the Atlantic for a couple months, and we’ll call it even ... oh, Taiwan? you mean our newest province?”
Remember that spat a few weeks back about raising the debt ceiling?
Remember the much-overlooked stories about how a very large pile of gov't-owned bonds were cashed in minutes after it was raised?
Having to pay your Visa minimum-due bill with your Mastercard is, for most practical purposes, default.
Source?
I should have been more specific. If SSA taxes were cut off, so that there was no more funds flowing into the SSA trust fund, then the trust fund would have enough to pay 4 years.
What you're suggesting that the Federal Treasury gets no more taxes is a hypothetical that has 0% chance of happening.
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