Social Security Is Like a Ponzi Scheme. How Do We Fix It?
Today, most of us get back much more than we paid in, and the program's costs exceed its income by billions of dollars.
"We will always protect Social Security, Medicare!" says President Donald Trump.
That would be nice.
But when I look at these programs' balance sheets, I don't see how he's protected anything. Both Social Security and Medicare are on track to run out of money.
Politicians mostly ignore the problem. Worse, progressives like Sen. Bernie Sanders (I–Vt.) and Rep. Alexandria Ocasio-Cortez (D–N.Y.) say they want to expand Social Security benefits.
That's just irresponsible.
My new video points out what we've known for years: These programs are unsustainable.
The problem is that people like me live longer. We like getting monthly Social Security checks and medical care that appears free.
Since we vote more consistently than others, politicians don't want to make us mad by cutting our handouts.
My fellow geezers say, "Social Security is not a handout! I contributed to the 'trust fund' every year. I'm just getting back what I paid in!"
But that's not true. Today, most of us get back much more than we paid in.
In 1935, politicians created the handout, saying, even if you don't save for retirement, government will save for you.
But that was another political lie. They didn't create individual retirement accounts. They didn't save our Social Security payments. They spend every penny as it comes in.
It's why Social Security is like a Ponzi scheme.
Bernard Madoff went to jail because he used new investors' money to pay old investors. That's exactly what our government does.
Few Americans realize it.
"What happens to the money?" I ask people on the street.
"It's held in trust," said one woman.
It isn't.
When politicians started Social Security, there were enough young workers to tax to cover the cost of sending checks to old people.
But now, since we live longer, there aren't enough young workers to fund our payments.
Social Security's costs exceed its income by billions of dollars.
"There is a plan out there to save it, but it requires some tough choices," says the Cato Institute's Romina Boccia. "Commonsense tweaks we can make."
Those include raising the retirement age, capping checks to the affluent, and letting young people opt out of Social Security. Reforms like that require tradeoffs. But ignoring the problem doesn't make it disappear.
We need to act, says Boccia, because Social Security is like the Titanic—gradually heading for disaster.
"Make reforms now," she says, "we can avoid the iceberg. [But] if we wait until the iceberg is in front of our noses and try to turn the ship, we're going to run right into it."
Medicare will hit its iceberg in 2033; then benefits will automatically be reduced. Social Security will hit it the year before.
At that point, incoming taxes will cover only about 78 percent of promised retirement benefits.
Yet irresponsible Democrats say: Spend even more.
"Human wants and needs are unlimited," replies Boccia. "There's always another program that needs more funding."
Sanders says, pay for it by taxing the rich more.
"There isn't enough money even that the rich would have, to pay for the…unfunded liabilities," Boccia points out.
If only politicians had listened years ago, when Cato and the Heritage Foundation proposed letting workers put some of their Social Security money into personal retirement accounts. Instead of relying on future taxpayers, workers could accumulate real assets that grow over time.
Personal accounts give workers something Social Security doesn't: assets we own.
"Even a conservative portfolio of stocks and bonds that got you a 5 percent annual return would have made you many times more [than Social Security]," says Boccia.
Private accounts helped Chile rise from one of the poorest countries in Latin America to one of the richest. Yet leftists still object to capitalists getting a cut of the pie.
"We lack gratitude for what the free market provides," says Boccia.
We should adjust these programs now.
The longer politicians wait, the worse the choices become.
But today's politicians will probably be gone by then.
Our children get the bill.
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