Social Security Fictions
U.S. Senator Patty Murray (D–WA) claims that “Social Security isn’t a ‘Ponzi scheme.’ It’s YOUR money.”
IN FACT, Social Security doesn’t save your money but mainly taxes current workers and gives the money to prior workers. If a private corporation ran a pension system like that, it would be illegal under laws that prohibit Ponzi schemes. Here are the specifics:
- As explained by the Social Security Administration, “The money you pay in taxes isn’t held in a personal account for you to use when you get benefits. We use your taxes to pay people who are getting benefits right now. Any unused money goes to the Social Security trust funds, not a personal account with your name on it.”
- Likewise, the National Academy of Social Insurance states that Social Security is “largely a pay-as-you-go program” in which “today’s workers” pay money that “flows back out as monthly income to beneficiaries.”
- In contrast, “federal law requires private pension plans to operate as funded plans, not as pay-as-you go plans.” The reasons for this law are to increase “benefit security” and ensure “intergenerational equity.”
- To put Social Security on the same footing as a fully funded pension plan, every person who currently pays Social Security payroll taxes would have to immediately contribute an additional $283,949 to the program.
- Per the SEC, a Ponzi scheme “pays existing investors with funds collected from new investors” and requires a “constant flow of new money to survive,” which is how Social Security operates.
- Like a Ponzi scheme, Social Security has levied multiplicatively higher tax burdens on succeeding generations of Americans, which has caused severe generational inequity.
- 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 Social Security has enough money to pay scheduled benefits for the entire period, which it is not projected to have.
- Contrary to the popular myth that Social Security has been “looted” to pay for other programs, the finances of Social Security have always been separated by law from the rest of the federal government, and this law has never been violated.
- What some people call “looting” is actually a legal requirement established in the original Social Security Act of 1935 that all of the program’s surpluses be loaned to the federal government and paid back with interest.
- Contrary to the claim that Democrat President Lyndon B. Johnson used Social Security to finance other government programs in the late 1960s, he actually changed an accounting convention that made the budget deficit seem smaller but had no impact on the finances of Social Security.
- As documented by the Social Security Historian’s Office, “the financing procedures involving the Social Security program have not changed in any fundamental way since they were established in the original Social Security Act of 1935 and amended in 1939.”
- Just the opposite of “looting,” if politicians hadn’t added extra money to Social Security by increasing its payroll tax rates above the levels specified in the original Social Security Act, the program would have become insolvent before 1980.
- Throughout the history of Social Security, the federal government has never failed to pay back the money owed to the program and has been doing this since 2010 when the program’s expenses began exceeding its non-interest income.
- The federal government has also been paying back the principal on the Social Security Trust Fund since 2020, which is why Trust Fund assets have been declining since then.
- Unlike Social Security payroll taxes paid in the past, the money used to pay back Social Security comes from the general fund of the U.S. Treasury, which is paid by different taxpayers in different generations and in different amounts. For example, middle-income households pay the highest effective rates of payroll taxes, while general fund taxes are progressive so that higher-income households pay much higher effective tax rates.
- All of the surpluses and interest that accumulated in the Social Security Trust Fund from 1937 to 2024 are only enough to pay for two years of the program’s costs.
- Per the Social Security Administration, “Since the Social Security system has not accumulated assets equal to the liability of promised future benefits, the social security wealth that individuals hold represents a claim against the earnings of future generations rather than a claim against existing real assets.”
- The program’s current claim against the earnings of future generations is $52.2 trillion, significantly more than the entire national debt.
- Despite steep tax increases over the life of the program, Social Security is projected to become insolvent in 2034 mainly because the ratio of workers paying taxes to people receiving benefits has fallen by three times since 1955 and is projected to fall further, much like a Ponzi scheme.
- One of the primary causes of that dynamic is increases in life expectancy without comparable increases in the retirement age. Thus, today’s beneficiaries are collecting Social Security benefits for 37% to 41% longer than when the program began, even though the wealthiest age cohorts in the U.S. are now 65 years and older.
- Another less impactful dynamic driving insolvency is the increasing number of people receiving disability benefits, which account for 11% of all Social Security payouts. From 1965 to 2024, the U.S. population grew by 69% while the number of people receiving disability benefits increased by 379%.
- Beyond the fictions that Social Security “saves my money” and has been “looted,” the following facts explode myths that have enabled creeping socialism in which each generation of beneficiaries feels entitled to more of the next generation’s paychecks.
- Other than fraud — which is relatively rare in Social Security compared to other government programs — people cannot collect Social Security old-age or disability benefits unless they have worked while paying payroll taxes for significant periods of time, typically at least 10 years.
- Social Security funds haven’t been funneled to the Supplemental Security Income (SSI) program. Although SSI is administered by the Social Security Administration, it is funded with general revenue taxes.
- Illegal immigrants aren’t draining Social Security but slightly improving its finances by using fraudulent Social Security numbers to work, which forces them to pay Social Security payroll taxes while typically being unable to collect benefits.
- Contrary to the talking point that the rich aren’t paying their fair share, the program is already a raw deal for high-income workers, and their inflation-adjusted maximum payroll tax is now 9.4 times the promised maximum.
In short, Social Security operates like a Ponzi scheme and isn’t your money once the government takes it from you, and this is why the program has become an increasing tax burden and is still facing insolvency.
