‘Scaring seniors’ with simple truths

At the Republican presidential debate in Tampa, Fla., on Monday night, Mitt Romney said Rick Perry has needlessly “scared seniors” by calling Social Security “a Ponzi scheme.”

Romney, more sensitive to the anxieties of retirees, prefers to say “the American people have been effectively defrauded out of their Social Security” (as he puts it in his 2010 book No Apology) because Congress has spent the program’s surplus revenue instead of saving it to pay for future benefits — the sort of crime for which bankers “would go to jail.”

Both the former Massachusetts governor and the current Texas governor understand that Social Security is a transfer program disguised as a retirement plan and that its frequently mentioned “trust fund” does not actually exist. Their spat over how exactly to characterize that situation is illuminating not because it reveals substantive differences between the candidates but because it shows how often these simple truths are overlooked.

The day of the debate, for instance, USA Today opined that “Social Security is most certainly not a Ponzi scheme” because Ponzi schemes “are criminal enterprises, which Social Security is not.”

Fact-checking Perry after the debate, CNN declared that “Social Security is not a fraudulent criminal enterprise designed only to benefit current participants in the program.” Rather, “It is a legitimate government program meant to serve both current and future generations of retirees.”

Digging a bit deeper, my colleague Shikha Dalmia observed that Social Security is in some respects worse than a Ponzi scheme, since participation is mandatory, money is diverted not only to earlier investors and the fund manager but also to various “programs for politically favored groups,” and the con goes on and on, even after it is revealed. I might add that Ponzi schemes offer much better returns (initially).

At Monday’s debate, Perry pointed out that Social Security “has been called a Ponzi scheme by many people long before me.” It’s true! And what did they mean by that?

As CNN helpfully notes, “The Securities and Exchange Commission defines such a scheme as ‘an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.’”

Social Security benefits likewise are funded not by returns on money that current retirees “paid into the system” but by payroll taxes collected from current workers. Yet the government misleadingly portrays Social Security as a pension program, periodically informing us about the retirement benefits we’ve “earned,” as if our money is being saved and invested for us.

Don’t be embarrassed if you’ve fallen for this scam. So has the New York Times. Last week, it tried to set Perry straight by reporting that “economists of all stripes agree” Social Security won’t “exhaust the money in the trust fund” until 2037.

But as the Times itself conceded last year, this trust fund is no more than “an accounting device” that represents how much the government owes itself — or, in other words, how much must be extracted from taxpayers to cover all the surplus Social Security money Congress has squandered over the years.

The surpluses themselves are long gone, replaced by Treasury bonds that can be redeemed only through higher taxes or further borrowing (which eventually translates into higher taxes).

“This trust fund is an elaborate illusion cooked up by government magicians,” Perry observes in his 2010 book Fed Up! In No Apology, Romney agrees, calling the trust fund a “fiction that’s often used to obscure the extent of the crisis.”

Social Security’s benefits already have begun to exceed its annual revenue, meaning the program is contributing to the deficit instead of making it seem smaller. By the 2040s, payroll tax revenue is expected to cover only three-quarters of promised benefits.

All of the possible solutions ultimately involve raising taxes or cutting benefits. But in settling on a particular fix, it is helpful to understand the true nature of the system we are reforming.

Jacob Sullum, columnist with the Chicago 'Slimes' newspaper is a liberal just as the fish wrap paper editors are. But as they say even a stopped clock is right twice a day.

"Digging a bit deeper, my colleague Shikha Dalmia observed that Social Security is in some respects worse than a Ponzi scheme, since participation is mandatory, money is diverted not only to earlier investors and the fund manager but also to various “programs for politically favored groups,” and the con goes on and on, even after it is revealed. I might add that Ponzi schemes offer much better returns (initially). "

I am sick and tired of being called a scared senior citizen. I am 70yo and can read and think for myself.

In this age of technology there is No excuse for anyone not to be informed.

The only way that I see that people already on or about to collect social security will lose their benefits is that there is a permanent reduction in the FICA deduction.

And what the "accounting device" means is that the government's general fund must repay SS $2.6 trillion over about 26 years, or an average of $100 billion per year.

With total budgets now in the $3.5 trillion plus region, and bound to increase over the next 26 years even if the annual deficit is effectively addressed, if the government can't repay SS an average of $100 billion per year, then SS will be one of our smaller problems.

Wonder if it will ever dawn on this writer and legions of others that SS is far less a future problem than Medicaid and Medicare. But the mob is stirring and shouting so there are many who can't resist joining in.

Yahoo! Cold. I am tired of being called incompetent, stupid or whatever else dems use to demean me because I am a “senior”. I am old and a techno geek - I am here and I am (ok well that doesn’t work) but you get what I mean. ;-)

“I am sick and tired of being called a scared senior citizen. I am 70yo and can read and think for myself.”

Me too!!!

(Ok...I’m not quite 70 but still a senior and I am not scared of the truth.)

;-)

It is not possible for a large nation to save for the future.

The wealth of a nation consists of its economy, millions of people working to produce goods and services. You can’t put that in a box and take it out 50 years later.

An individual can save money, and invest in stocks and bonds while he is young, and draw it out in his old age.

But what is a country going to do? If there are not enough young people producing goods and services, saving consisting of stocks and bonds are not going to be worth anything.

An individual can save money, and invest in stocks and bonds while he is young, and draw it out in his old age.

But what is a country going to do?

Answer:
Provide a mechanism wherein all citizens are able/encouraged to do the above. It's called privatization of Social Security and has worked like gangbusters for Chile.

But, you probably already knew that...

“It’s called privatization of Social Security and has worked like gangbusters for Chile.”

Exactly. Appropriately incentivized individuals can do collectively what government cannot. An individual saving for his/her own retirement (and not expecting Uncle Sam to provide it) has a built-in incentive to save rather than over-consumer as well as a built-in incentive to work longer/harder. Collectively, these individual actions will result in a much bigger pie in the future regardless of whether there might be a generational imbalance in the number of people in one generation versus another.

In contrast, when politicians are in charge of retirement, there’s the risk that a) they will divert surplus payroll taxes to be spent on government goodies other than the purpose for which they were collected; and b) they will enhance the promised goodies to today’s retirees knowing that they’ll be long gone from office by the time the tab comes due. These perverse incentives are exactly why SS is in a heap of trouble in the first place.

I’m a senior drawing SS and Perry didn’t scare me at all. In fact I was saying the same thing back when I was in my 20s. I was all for privatizing it back then. I would be far better off than I am now and I wouldn’t be taking money from some young guy’s pay check in order to pay me. If the government had kept their hands out of the SS cookie jar it wouldn’t be as bad as it is now but there is still something terribly wrong with forcing people to pay into a government program. Compound the problem by not making individual accounts for each tax payer and you have real problems. It is just as unconstitutional to make me pay into SS as it is to make me buy health insurance.

Several reasons the Politicians don’t want to tackle this topic...

With individual accounts there is no access for the freeloaders to get disability checks or free medical coverage off my “contributions”.

That means less votes.

Well, suppose all citizens did save money in stocks and bonds, but failed to have children. What would happen then? Of what value is stock in a company located in a country where all the workers are retired?

They’re going to find out about this pretty soon in Japan. The bulk of their savings are in Japanese government debt.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.