Texas Governor Rick Perry called Social Security is a “PonziScheme”
A Ponzi Scheme, namedfor Charles Ponzi, is a pyramid scheme where the schemer takes money form“investors” and promises far better than normal returns on that “investment”.In order to make the initial investors believe that the scheme is working hehas to pay out “profits” to fulfill his promises. He gets this money from thenext group of investors.
To keep the scheme solvent the schemer has to keep expandingthe base or increase the required investment from future investors. Eventuallythe Ponzi scheme is unsustainable and collapses.
When the Social Security Act was passed (August 14, 1935),it was sold to the American People as a form of “insurance”. (Any insurancecompany run like the SSA would be closed down and the officers jailed.) Therewere promises made to the public, among them that it would be voluntary, thatthe Social Security Number would never be used as identification, that the taxwould never exceed 2% and that only you, the SSA and your employer would everhave to know that number. Every single one of those promises has been brokenover the years.
Let’s examine Social Security against the Ponzi scheme. ThePonzi scheme is completely voluntary. Social Security is not, even though itwas originally presented as such. The Federal government does not have todepend on volunteers because it can, and does, use the power of coercion. Onceyou’re in, you cannot opt out. On this level the Ponzi scheme is the betterdeal. First, you don’t have to get in if you don’t want to. Second, you can optout at any time by simply not re-investing.
How about expanding the base that is continually bringing inmore money to pay out on the earlier investors? Social Security has increasedthe base in at least three ways. First, the people who were specificallyexcluded originally (including self-employed, professionals, certain governmentworkers, higher-income citizens, etc.) were required to join. I was required toget my Social Security card when I was 16 years old and got my first job. Nowyou cannot bring your new-born child home from the hospital without the card.
The second way that the base has been expanded is simply byincreasing the Social Security tax rates. Since 1937 these tax rates haveincreased 19 times. Third, the base was expanded by increasing the amount ofincome the tax applies to. In 1937 the rate applied only to income up to $3,000per year. This has been increased 42 times until it now applies to income up to $106,800.
The Social Security tax rate was decreased exactly once inthe last 74 years, by one-tenth of one percent, the exact amount of theincrease in Medicare tax. The Medicare tax was implemented in 1966, which couldaccount for 12 of the rate increases because Medicare and Social Security werededucted under one entry on your pay stub. That changed in 1991 when it wasdecided that the increases in the tax might be noted by the public easier ifthey were given one number rather than if they had to add them together, so nowthere are two line items. Medicare has worked in a way similar to SocialSecurity in that the base kept changing. The difference is that in 1991 thelimit on earnings was changed to No Maximum. Social Security taxes are appliedto income up to a maximum of $106,800 this year but there is no limit for Medicare.
A while back we all watched the news as Bernie Madoff wasconvicted of fraud. We were told that he built the biggest Ponzi scheme in thehistory of the world. Actually, Madoff’s scheme pales beside the fraud of SocialSecurity. Even the Social Security Trustees have been saying that the systemcannot be sustained for too many more years. But even that isn’t all. Rememberthe trillions of dollars that we are in debt? Social Security owns much of thatdebt. It’s not just China and Japan; it’s everyone in the country who has aninterest in the Social Security system. That means almost all of us.
Something has to be done to insure that people who aredependent on the system will not be abandoned, but it cannot go on forever.While it may be comforting to know that the government is going to look out foryou in your future, the reality is it can’t. What we as citizens have to do isbe vigilant and not vote for anyone who promises something that has to be paidfor by someone else or that offers us something for nothing. Now as always, “there’sno such thing as a free lunch”.
CharlieGruner
Knoxville, IL
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