How to fix the Social Security debacle

I kept thinking this week as Washington bureaucrats celebrated the 80th birthday of Social Security that I should point out how the whole thing is a big Ponzi scheme, as I did in 2009. Eighty years ago every retiree was supported by 40 workers, but soon that ratio will be 2 to 1.

Sen. Harry Reid says Social Security is just fine, though in 1980 he said the trust fund was being embezzled.

Stephen Moore beat me to it with today’s op-ed in Investor’s Business Daily. “From the moment Franklin Roosevelt created Social Security in 1935, the system was set up as a classic Ponzi scheme,” he writes, citing the worker to retiree ratios.

Moore not only points out the problem, but he offers a fix:

There are options to fix the program, but they’re all very bad for today’s and tomorrow’s workers. Democrats want to raise the tax — and take even more money from workers’ paychecks. Republicans, like New Jersey Gov. Chris Christie, want to cut benefits. Anyway you cut it, young workers will be asked to pay more in and get less out.

Another fix that would forever end the Ponzi scheme and provide today’s young workers with higher, not lower benefits. Give them the option of putting 10% of their 12.6% payroll tax dollars into an individual account that’s invested in an index fund of all stocks.

At historic rates of return, this would give workers a 7% return per year, which would let them retire as millionaires after 40 years of work. They’d receive two to three times more than Social Security promises.

Social Security could still be there as a backstop for those who didn’t reach a minimum benefit, and the feds could issue long-term bonds to pay existing retirees their promised benefits.


IBD chart

54 comments on “How to fix the Social Security debacle

  1. Steve says:

    If they did that, there would be no “trust Fund” to raid.

  2. Nyp says:

    Under your theory of constitutional law that would still be unconstitutional

  3. nyp says:

    BTW — a “ponzi scheme” that lasts 100 years is, by definition, not a ponzi scheme.

  4. Barbara says:

    Violations of the law are not easily remedied overnight Nyp..

    Social Security is worse than a Ponzi scheme as we have no choice but to participate. At least in a private Ponzi scheme, those who participate do so of their free but misguided will.

    When I hire a new person, I use a financial calculator to show them the effect of investing the money deducted from their paychecks into a Roth IRA with just a 5 percent return. (In my illustration I use the matching funds to continue to pay into social security for 10 years to pay current benefits for those already receiving social security. After 10 years, their employer contribution is added to their Roth. I run 2 illustrations; one with no increase in pay and a 2nd with a modest 2 percent increase.) At the end of 40 years of their working life, they cannot believe how much money they would have in their Roth. I print both Illustrations and tell them to share it with their friends and family, and to think about it every time they look at their paycheck. Every so often, when I hand out their paystubs (all are on direct deposit), I hear comments like “I can’t believe how much I’m paying in taxes.”

    The Washington Cartel offers no solution to the rising generation but forced participation in a scheme that will cost them more than they can ever hope to recover. Only through privatization, can we untangle ourselves from this costly and illegal enterprise.

    Mark Levin has an excellent chapter on Social Security in his book Plunder and Deceit. He makes the point that people retiring today will receive less in benefits than they paid into the system in taxes. Raising taxes to sustain this system will only deepen the theft from present day contributors.,

    Levin also sites economist Henry Hazlitt who explains the phenomenon behind social security. “Bad economists see only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences. The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.”

    We have many bad economists.

  5. Steve says:

    “Under your theory of constitutional law”

    Who’s theory?

    Mine is the Supreme court makes it’s decision and there is no further to go, that makes it constitutional until the Congress passes law, which the president signs, to change it.
    So it remains constitutional no matter what my opinion of the program may be.

  6. nyp says:

    If you are aware of any other “ponzi schemes” that last for more than a century, please sign me up.

  7. 80 years is not a century yet.

  8. Barbara says:

    The only reason it has lasted so long is because of the forced participation by the government. No one in their right mind would willingly pay into a “retirement” scheme that is guaranteed to return less money than you have “invested”.

  9. Steve says:

    Numbers games, as well as ponzi schemes, are illegal. Unless you are the entity making the rules.
    Enjoy the “lottery”…..

  10. Patrick says:

    If SS is “guaranteed” to pay back less than is put into it, and everyone is “forced” to pay into it, how could it be anything other than solvent?

  11. Rincon says:

    When social security began, the average person lived 62 years. Now, it’s about 80 or so. Failure to adjust for this demographic has been by far the primary reason we’re in this pickle, but neither Conservatives nor Liberals see changing the retirement age to 72 or so as an option even though it would solve the problem completely. That’s because people are greedy and like to whine and complain.

  12. Barbara says:

    Until I read Mark Levin’s chapter on Social Security, I too believed that the reason Social Security was insolvent today was due to the expanding longevity of the populace. The problem is deeper than just longevity. From Plunder and Deceit:

    “Social Security has expanded from its original scope in 1935 to include workers’ dependents and survivors as well as the disabled. As a result, there are roughly 35 million people receiving benefits – more than double the number in 1970. As members of the ruling generation begin to retire, many more will be eligible for benefits. Unfortunately, there will not be nearly enough younger people working to pay the current rate of taxes to subsidize them. In 1940, there were 159 workers for every beneficiary. That ratio has dropped precipitously from 16.5 in 1950, to 5.1 in 1960, to 3.7 in 1970 to slightly below 3 in 2010 – and it is projected to get worse. There will only be 2.2 workers for every beneficiary in 2030.”

    Failure to understand the mathematics behind Social Security contributes to the insolvency. The working base cannot sustain promised benefits. Band aides have been applied in the past to keep the scheme going.

    When it started the tax rate was 1% and did not reach 3% until 1960. Now it is 12.4 split between worker and employer. The self employed pay the full 12.4 percent. Income subject to the tax grew from the first $3,000 to the current $117,000 income cap. The age for full benefits has increased from 65 to 66 for those born between 1943-1954, and will go to 67 for individuals born in 1960 or later.

    Additionally, in 1984, benefits became subject to income taxes for those recipients below the full retirement age whose income was above a certain threshold. In 1993 even more benefits were made subject to income tax and at a higher rate at up to 85 percent of benefits received. These rules are complex as there is a monthly income threshold as well as an annual threshold, but generally for single individuals the cap is around $25,000 annually and $32,000 for a couple. As the income increases, so does the tax paid from 50% to 85% of benefits.

    It is a bad mathematical formula. We only make the deal worse for future generations by raising the tax rate and/or expanding the cap on income, and pushing out the retirement age for full benefits., The problem is not greed and whining – it’s the math.

  13. Barbara says:

    From Plunder and Deceit:

    “In 2011 the Urban Institute found that a married couple who earned average lifetime salaries retiring that year had paid about $598,000 in Social Security taxes during their working years. However, they can only expect to receive about $556,000 in lifetime retirement benefits, assuming the husband lives to 82 and the wife lives to 85.”

    Do we really want to burden the rising generation even further by raising the taxes they will pay or shortening the time they can draw benefits? When do we say enough is enough.. We are not going to shore up this scheme on the backs of the young and as yet unborn.

    It is past time for truth. Social Security is a burden on the rising generation. It is neither an “insurance policy” or an “retirement investment”. It is nothing more than an additional tax to fund government spending for today’s generation.

  14. Rincon says:

    Disability coverage certainly contributed to our problem in a big way. Raise the retirement age and require disabled people to work, and the problem will recede.

  15. Barbara says:

    How will that cure the problem of people paying more into the system than they receive back? Drawing it for a shorter period of time would only make it a worse deal. Getting less than you paid in to the system is no longer a benefit but a burden.

  16. Patrick says:

    I’ve paid my car insurance (forced to) for years. Never made a claim or had an accident and my premiums keep going up.

    But I keep coming back to the same question; if a system pays less, guarantee, than you get back, and that is true for everyone, how could the system ever run out of money?

  17. Steve says:

    Who forced you to buy car insurance? You could take public transportation!
    In fact, you should, because you need to live up to your need to shrink that carbon foot print!

  18. Rincon says:

    Obviously, some people get much more than they pay in. That would be the “disabled” and the previous generation. The horse is out of the barn, Barbara. You can’t get back the excess that was paid to these people.

  19. Rincon says:

    One small benefit though, which a Conservative would never recognize. We’ve all had “free” disability insurance for most of our lives. Be glad you never needed it.

  20. Patrick says:

    Whose forcing Steve (or anyone else not otherwise imprisoned) to live in the US? I guess if I’m “free” to take public transit so as to avoid paying for insurance that I’ve never used, then all those complaining about being “forced” to do those things this country’s laws require re free to avoid those requirements by leaving.

  21. Barbara says:

    No one is trying to get back the “excess” that was paid to anyone. And Social Security is not insurance – officially – legally. The Supreme Court made this clear in Helvering v. Davis (1937) “The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.” and Fleming v. Nestor (1960) “To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands.” “It is apparent that the non-contractual interest of an employee covered by the [Social Security] Act cannot be soundly analogized to that of the holder of an annuity, whose right to benefits is bottomed on his contractual premium payments.”

    Everyone who retires and starts collecting social security today that has an average pay scale and average life span. will have paid more into the system than they draw out. This is akin to paying car insurance all your life, having an accident, and being told that you can’t have your car repaired, but we’ll give you a bicycle to ride instead. Sorry, and by the way, you can’t collect on that bicycle because you’re too young. You must wait 5 more years to get your bicycle so we can afford to actually pay for it. Of course, depending on how may people claim their bicycles in 5 years, we may have to give you a tricycle instead.

  22. nyp says:

    no, it is like paying money into a combined pension and insurance plan. Over the years I have “invested” thousands and thousands of dollars into my homeowners, auto and term life policies. If my home never burns down, I don’t have a car crash and the term life policy expires before I die I will never get that money back. But I will be very, very happy.
    Similarly, if neither I nor someone in my family becomes disabled I will not need to make a claim for Social Security Disability. So I suppose the insurance portion of my Social Security contributions will be “wasted.” Fine with me!

  23. Steve says:

    There it IS!!
    “Whose forcing Steve (or anyone else not otherwise imprisoned) to live in the US?”
    Translated it for you Patrick.
    “If you don’t like my opinion GET OUT!”

  24. Patrick says:

    Steve has the world of problems when someone presumes to put words in his mouth, but seems to have no problem doing it for someone else

    “Hypocrisy thy name is republican.”

  25. Steve says:

    Patrick puts words in everyone’s mouths then tries to complain about it when it gets done to Patrick.

    Patrick, Hypocrite is thy name.

  26. Rincon says:

    By what twisted logic does this get out idea apply to nyp, but not to Steve? Someone enlighten me.

  27. Barbara says:

    Nyp – it is not a pension or insurance plan. Your favorite entity, the Supremes have spoken. There are no property rights, no individual accounts, nothing. Congress can do away with the whole system tomorrow and you would have no legal recourse – so say the Supremes.

    Without all the windfow dressing, it is a wealth transfer tax. The government dresses it up by calling it “insurance”, taxes are “contributions”, payouts are “benefits”. To continue the scheme, government will trot out early “beneficiaries” to show how much good is accomplished all the while knowing that new “contributors” are needed to pay current “beneficiares” – a robbing Peter to pay Paul scheme. An ongoing criminal enterprise made legit by the force of government designed to take advantage of the public – otherwise known as “useful idiots” by regular scam artists.

  28. nyp says:

    I see. So a law, enacted in 1956, entitled the ” Old-Age, Survivors, and Disability Insurance” program is not really an insurance program, because something, something, something. It is, according to your overheated, talk-radio rhetoric, a “criminal enterprise”.

    However, you are correct, Social Security has a redistributive impact. It is a net benefit to working-class Americans, and is likely a net detriment to more affluent Americans. That is what you object to. You (and Mr. Mitchell) believe that any such social program is unconstitutional, and immoral to boot.

  29. Barbara says:

    It’s not an insurance program because the Supreme Court – which you have in the past determined to be the “law of the land” – says it’s not. And yes, if a private individual ran an “insurance” or “pension” scheme which relied on new money to pay promised benefits, it would be considered criminal – Bernie Madoff comes to mind.

    You are incorrect that it is a net benefit to working class Americans. It is not, and it will get worse when the ruling class decides how to shore up this theft scheme.

    Take an 18 year old making $30,000 per year. They pay 12.4 percent or $3720 annually in SS tax ($30,000 x 12.4%=$3720). If they could invest $3720 per year until age 67 averaging just a 5 percent return, they would have $775,055 in their retirement account.

    The S&P using CAGR (compound annual growth rate) returned 9.62 % from 1957 through 2011 and 11.12% using a simple average so I’m being very conservative in these projections.

    The maximum monthly social security check allowed under current law in 2014 was $2663 if you maxed out social security taxes your entire working career. Assuming you start benefits at age 67 and die at age 85 (18 years) your lifetime benefit would have been $575,208.

    “a net benefit to working-class Americans” – No! It’s not a benefit to anyone today regardless of class. It’s theft pure and simple and it’s going to get worse. It robs Americans of any chance at wealth accumulation, but the “useful idiots” still defend the program.

  30. Rincon says:

    Might want to remember why Social Security was adopted in the first place: ” A limited form of the Social Security program began as a measure to implement “social insurance” during the Great Depression of the 1930s, when poverty rates among senior citizens exceeded 50 percent.[1] The stock market crash of 1929 had destroyed the value of many Americans’ retirement savings, and bank failures did further damage.”

    We learned from the depression that, although stocks and bonds provide high returns, they are not reliable in the hands of the average individual; investor. The idea of putting social security contributions into so- called ultra safe, but low interest investments is reasonable. It is the floor of an investment program. People who manage to save more can go into stocks and bonds with SS safely beneath them. Without SS, they would need a floor of ultra safe investments anyway. As for the numbers, I can only say that in listening to Mark Levin, I’ve found him to be as misleading and inaccurate as anyone I’ve heard on TV or radio – definitely worse than Schlessinger, Hannity or Limbaugh, so I’m not ready to buy it. Since the claim is that the average person gets far less out of SS than they put in, it dictates that money is disappearing from the fund. Anyone have any theories as to where it went?

  31. Barbara says:

    The numbers I gave you are not from Mark Levin. You can verify them using any financial calculator.

  32. Barbara says:

    Money is not disappearing from the fund. It is being administered according to law, receiving taxes and paying out benefits just as it is suppose to do. It’s the math! It is a classic Ponzi scheme and every time we get to it’s eventual collapse, we just pass laws to extend the scheme a little while longer.

  33. Athos says:

    Well, Barbara has accurately described what this generational theft is all about! Well done! Just punt the problem down the road. That’s the way ya do it! (Till the printing press breaks!)

    On another note, who can tell me when the Democrat Party became the Socialist Party? (multiple choice, of course!)

    a) 1912 and the election of Woodrow Wilson

    b) 1944, (or ’48. Help me on this one, petey!) and the famous Norm Thomas quote (six-time U.S. Presidential candidate for the Socialist Party of America

    c) 2009 and the election of the Saul Alinsky disciple, Bill Ayers buddy, Reverend Wright worshiper the ZERO MAN HIMSELF!


    d) the 2015 rapid ascent of the Democrat Presidential Candidate Bernie Saunders?

    It’s nice to be back at Tom’s blog. Been pretty busy and missed out.

  34. Patrick says:

    Anyone claiming that a system where everyone pays in more than they take out, but further that the system is in danger of being insolvent has a math problem that cannot be fixed.

    Social Security makes the lives of the entire country better and anyone that doesn’t see it has more than just problems with their math ability.

  35. Athos says:

    Wow. You sure didn’t waste any time bearing up my “Idiot” theory, Patrick. With 62 million workers out of a potential workforce of 150+million, and a country of 310 million people and more on the way (that would be all our illegal aliens), not everyone is paying in, are they?

    And those of us that do pay our 12.4%, we’re getting tired of carrying all that dead weight.

    And when we’re gone, who’s gonna pay in then, Mr. Math Guru?

  36. Athos says:

    And by the way, I’m sure all my retired acquaintances living in Summerlin using those SS checks for green fees makes you feel better, doesn’t it?

  37. nyp says:

    For my sins I decided to go back and re-read the two Supreme Court decisions cited by Barbara as proof that Social Security Disability Insurance is not insurance. Sure enough, I could not find statement in either decision that supported such a loopy argument. In fact, one of the cases, Flemming v. Nestor, repeatedly refers back to Social Security’s disability coverage as “insurance.”
    Perhaps Barbara can do what I can’t and find the quote that proves that disability insurance is not insurance.

  38. Barbara says:

    Nestor held that there are no property rights meaning the government is not required to pay any benefits whatsoever. The earlier case in Halvering upheld the entire act based on Congress’ power to tax – this was the only way to get around the 10th Amendment. There is no requirement to actually pay benefits as there would be had the Court held the act established a contractual obligation to pay benefits as in an insurance contract.

    Patrick – I guess the trustees of the Social Security “trust funds” can’t do math either. According to the trustees there will be a cash deficit averaging about $77 billion annually through 2018 which will rise steeply as the number of beneficiaries continues to grow at a substantially faster rate than the number of covered workers. When the trustees calculate the present value of the unfunded obligations (promised benefits) for the next 75 years, it comes to $10.6 trillion. This is $10.6 trillion on top of the money being collected from Social Security taxes.

    Think of a big water trough with 10 people putting water into it but 100 people taking water out. The 10 people putting water in are using gallon buckets, and the people taking water out are only using cups. Over time the people taking water out by the cup increases to 1000 and the people putting water in decreases to 5. Get the picture? The trough over time will contain less and less water until it eventually runs dry.

  39. nyp says:

    I am pleased to see Barbara confirm that the Supreme Court decisions she cites have nothing to do with with the crazy notion that Social Security Disability Insurance is not insurance. It is true that in some bizarro world Congress could repeal Social Security and cancel disability benefits — as well as the main S.S. benefits. It could also cancel Medicare insurance, the federal flood control insurance program, the terrorism insurance backstop and the various large agriculture reinsurance programs. That doesn’t mean they are not insurance, and certainly not that do not have an enormous value to the beneficiaries of the government insurance.

    Barbara’s argument is that because twenty years from now, if nothing is changed, Social Security will only be able to pay 3/4 of what it is scheduled to pay in benefits, we should start cutting benefits now. Well, I suppose that accurately reflects the Republican view of Social Security.

  40. Barbara says:

    I have never advocated cutting benefits and I certainly didn’t “confirm” that the Supremes ruled that Social Security is insurance. I refuse to be an “useful idiot” and pretend that on the whole, SS is good and will continue to be good for the populace. The American people can do better with private savings accounts that accumulate wealth that can be passed on to children and grandchildren. SS is a particularly bad deal for minorities that do not have as long a life span as whites. But of course private accounts wouldn’t make Liberals feel good about themselves even though they would be tremendously better for the country and the individual. Continue to be the “useful idiot” but don’t rely on that promised SS check for your retirement.

  41. Patrick says:

    Barbara: if the trustees said what you claimed, it does not change that what you said about SS being “guaranteed” to pay back less than what a person pays into it. That statement was just wrong. In case you haven’t figured that out yet.

    The legend assertion by the trustees, is merely support for the fact that you were wrong.and anyone believing that private accounts make sense, for anyone, is indeed a useful idiot because one reason why the SS system has been the overwhelming success it has been for so long, is that it makes absolutely sure that the useful idiots don’t blow their money, before they are retired, and end up on the street left, by conservatives, to die.

  42. Barbara says:

    A classic example of how Bernie Madoff and Charles Ponzi were able to swindle so many…A lie makes me feel better so I will believe it regardless….

  43. Patrick says:

    It is surely a lie that SS recipients are “guaranteed” to pay more into SS, than they receive.

  44. Barbara says:

    How so? How do you know this is not true? Show me the math that disproves this statement.

  45. Athos says:

    Jeez, petey. If you did indeed read all of Helvering v. Davis, 301 U.S. 619 (1937), you’ll see how the Supreme Court got around the “insurance” angle sold by the Socialist FDR. Wow. Fast forward 75 years and we get another “it’s a tax not an insurance” from ANOTHER socialist snake oil sale.

    I guess some things are consistent, aren’t they?

  46. Athos says:

    Obviously Patrick received an allowance from his parents growing up. But now, instead of his parents, it’s big brother that should dole out the dimes to the good little boy.

    Count me out of this enslavement, Patrick.

  47. Patrick says:

    Barbara, it would be simpler if you just admitted to making an incorrect statement. Which, as we both know, people on the right like to do when it comes to SS.

    Look Barbara, do your calculation and rather than using an average life expectancy, use a person that lives until they are 85. That should make it obvious as to why your statement was…incorrect.

  48. Athos says:

    Paying in for 19 years didn’t work out so well for Ephrim Nestor, did it, petey?

  49. Patrick says:


    Let us all hope, for the sake of any dependents you may have, that your income is not reliant upon your deductive ability.

    “The world needs ditch diggers too Danny”

    Ted Knight in “Caddy shack”

  50. nyp says:

    Oddly enough, Athos, the word “insurance” does not even appear in the text of Helvering v. Davis. Wasn’t even at issue. That may be because SSDI would not be added for another two decades.

  51. Athos says:

    That’s right, petey. Ephrim wanted the money he paid into the system and was denied because it WASN’T an insurance plan.
    It was a TAX!

  52. Patrick says:

    I don’t know which Helvering v Davis case Barbara read, but the main issue was whether the 10th Amendment could prevent the Congress from providing for the General Welfare or not. (It couldn’t).

    Furthermore, the “Supremes” did not say (although that didn’t stop Barbara from saying it) that “Congress can do away with the whole system tomorrow and you would have no legal recourse – so say the Supremes.” Even the majority in Newtor acknowledge that Congress could NOT act completely arbitrarily with regard to SS benefits, and that their acts had to be rationally related to the goals.

    Why is it, that members of the right so constantly feel the need to misstate, overstate, misrepresent and sometimes just plain lie about SS?

  53. Patrick says:

    And no Althos, Nestor couldn’t get his money out because the SS Act provided that Congress could, alter, amend, or change the Act, which it did in 1954 during the right wing red baiting scandals to prevent “commies” from collecting SS.

    The Court found this was within the Acts provisions, and that so long as the change was not arbitrary and capricious, and violative of due process considerations, the Congress had that authority.

  54. […] Moore wrote an op-ed in Investor’s Business Daily a couple of years ago explaining, “From the moment Franklin […]

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