Ponzi! Ponzi! Ponzi! There, I said it. To the extent people believe there are trust funds with their names on them, Social Security is absolutely a Ponzi scheme. So is Medicare. People need to hear it.
Many people think that when the government takes payroll tax from their paychecks, it goes to something like a savings account. Seniors who collect Social Security think they're just getting back money that they put into their "account." Or they think it's like an insurance policy—you win if you live long enough to get more than you paid in. Neither is true. Nothing is invested. The money taken from you was spent by government that year. Right away. There's no trust fund. The plan is unsustainable. Medicare is worse.
Mitt Romney and other Republicans who scoff at Rick Perry shamelessly pander to older voters. They should tell people the truth.
Still, I'm not convinced Perry has more than a sound bite. In his USA Today op-ed this week, the most he says is, "We must consider reforms to make Social Security financially viable." He doesn't say what kind of reforms.
Charles Ponzi promised to make money for investors by taking advantage of price differences in coupons for postage stamps. Trouble is, he paid some early "investors" with money wheedled from later "investors."
What sustains a Ponzi scheme is deception. If people really knew how it worked, they wouldn't sign on.
Social Security and Medicare are different. You could say no to Ponzi. I wouldn't advise saying no to the government. Not if you want to stay out of prison.
Social Security is nothing more than a promise from politicians. The next gang can break the promise.
Twice the government has argued before the Supreme Court that Social Security is not insurance. In 1960, Health, Education and Welfare Secretary Arthur Sherwood Flemming submitted a brief to the courts stating: "The contribution exacted under the Social Security plan is a true tax. It is not comparable to a premium promising the payment of an annuity commencing at a designated age."
In a ruling that denied a man's property claim to Social Security benefits, the Supreme Court said, "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."
So anyone who believes Social Security is an investment plan really has only himself to blame.
If you want evidence, listen to how politicians talk about your Social Security "contributions." They are taxes and nothing more. No one pretends they are premiums. In fact, President Obama and the Republicans want to stimulate the economy by extending a cut in the payroll tax for workers and cutting the employer's share of the tax—but without reducing Social Security benefits.
Now, I like tax cuts more than the next person, but as Freeman editor Sheldon Richman points out, this one has a complication the politicians don't seem to care about:
President Obama's jobs program calls for cuts in both sides of the payroll tax. That tax finances Social Security and Medicare. Social Security and Medicare are already taking in less money than they need to pay retirees. So they will have to cash in more of the Treasury IOUs left behind when previous surpluses were used to finance general expenditures. But the Treasury is also already running a deficit, a trillion dollars-plus. So it will have to borrow more in the capital markets in order to pay back the Social Security and Medicare funds. Unless Obama makes up the lost revenue by changing the tax code. But then money will be withdrawn from the economy in the form of higher taxes so it can be put back into the economy through the payroll-tax cut. Somehow that's supposed to stimulate the economy.
Like all jobs programs, Obama's latest plan is a scam. The economy would create ample opportunities to earn income—and make it easier for people to look after themselves in retirement—if the government would just slash spending, taxes, regulation and privilege.