Ponzi Schemes & Social Security
In response to Elon Musk calling Social Security the “biggest Ponzi scheme of all time,” U.S. Senator Patty Murray (D–WA) claims that SS “is not a Ponzi scheme” but “a promise that every American pays into so they can retire with dignity.”
IN FACT, if a private corporation operated a pension system structured like SS, it would be illegal under laws that prohibit Ponzi schemes. Here are the facts:
- Per the SEC, a Ponzi scheme “pays existing investors with funds collected from new investors.”
- Contrary to a popular myth, SS doesn’t save people’s money but pays benefits mainly by taxing people who are currently working.
- Per the National Academy of Social Insurance, SS is “largely a pay-as-you-go program” in which “today’s workers” pay money that “flows back out as monthly income to beneficiaries.”
- Per the U.S. Bureau of Economic Analysis, “federal law requires that private pension plans operate as funded plans, not as pay-as-you-go plans.”
- Per the American Academy of Actuaries, federal law bans pay-as-you-go pension plans in the private sector to increase “benefit security” and ensure “intergenerational equity.”
- Like a Ponzi scheme, SS has levied multiplicatively higher tax burdens on succeeding generations of Americans, thus creating severe generational inequality.
- Politicians enacted SS with an explicit promise that “the most you will ever pay” in taxes is “3 cents on each dollar you earn, up to $3,000 a year.” Adjusted for inflation, the maximum SS payroll tax is now 9.1 times that amount, and SS imposes other taxes to fund the program.
- For workers who earned average wages and retired at the age of 65 in 1980, it took 2.8 years of receiving old-age benefits to recover the value of their payroll taxes (including interest). For workers who retired in 2003, it took 17.4 years. For workers who retired in 2020, it will take 21.6 years. This assumes that SS has enough money to pay scheduled benefits for the entire period, which it is not projected to have.
- Despite multiplicative tax increases, SS is due to become insolvent in 2035.
- To put SS on the same financial footing as a fully funded pension plan, every person who currently pays SS payroll taxes would have to contribute an additional $272,237.
- Contrary to other popular myths, the SS Trust Fund hasn’t been looted, Trust Fund operations have not changed in any meaningful way, and no money has been diverted from SS to the SSI program.
