Thursday, September 8, 2011

Quote of the Day: Reason Magazine on Social Security as a Ponzi Scheme

Rachel Maddow and her MSNBC guests are scandalized that Rick Perry stuck to his guns that Social Security is a Ponzi scheme during the presidential debate tonight. “This kind of rhetoric will hurt him in the general elections,” they reassured each other. They didn’t flat out say that Perry was wrong, but actually he is. Social Security is not a Ponzi scheme. It is much worse.

Here are three reasons why:

One, a Ponzi scheme collects money from new investors and uses it to pay previous investors—minus a fee. But Social Security collects money from new investors, uses some of it to pay previous investors, and spends the surplus on programs for politically favored groups—minus the cost of supporting a massive bureaucracy. Over the years, trillions of dollars have been spent on these groups and bureaucrats.

Two, participation in Ponzi schemes is voluntary. Not so with Social Security. The government automatically withholds payroll taxes and “invests” them for you.

Three: When a Ponzi scheme can’t con new investors in sufficient numbers to pay the previous investors, it collapses. But when Social Security runs low on investors—also called poor working stiffs—it raises taxes. Indeed, Cato Institute’s Michael Tanner points out,
Social Security taxes have been raised some 40 times since the program began. The initial Social Security tax was 2 percent (split between the employer and employee), capped at $3,000 of earnings. That made for a maximum tax of $60. Today, the tax is 12.4 percent, capped at $106,800, for a maximum tax of $13,234. Even adjusting for inflation, that represents more than an 800 percent increase.
And given that the worker-to-retiree ratio is expected to fall from 3-1 today to 2-1 in 2030 (down from 16-1 in 1950) these taxes will only go up unless the government decides to kick retirees in their dentures and slash benefits.

Rick Perry should stop soft-peddling the issue and tell it like it is.

~ Shikha Dalmia at Reason Magazine

Do you agree with this point of view? Is Social Security nothing more than a Government sponsored Ponzi Scheme? Or is it a Pyramid Scheme? Or something else?


  1. I guess it depends on who you are. My grandma worked just a few years (after her divorce in her 50s) and received SS payments from the age of 62 to 88. I am guessing she received much more than she ever gave. My other grandma never worked at all, but received benefits when my grandpa died when he was 65. She received benefits until she died at 97. Social Security was good to my grandmas, and they would not call it a 'scheme' of any kind.

    Now, take me for instance. We have paid a ton into SS (like you have) and all I ever hear is how I shouldn't plan to get any of my money back. (I would never count on the government for anything anyway.) I guess I don't know what I would call a system that forces you to contribute money for your 'own good', and then mishandles the money for their 'own good', and then tells you that the investment you made for your own sake just may not be available to you when you need it. To me, that sounds more like a scam than a scheme.

  2. I'm more include to say SS is a pyramid scheme. No question this was a great program for our grandparents and parents. They received more benefits than what they paid in. But as demographics change, the deal for us will be ok, but our kids and grandkids run the possibility of receiving less in benefits than what they contributed.