Ponzi Social Security May Be the Wedge Issue for Youth Voters

Big Government ^ | 9-10-2011 | Chriss W. Street

[smoothsailing]

Ponzi Social Security May Be the Wedge Issue for Youth Voters

Chriss W. Sweet

September 10, 2011

When Texas Governor Rick Perry in the Republican debate at the President Reagan Library described Social Security as a “Ponzi Scheme”; Perry hoped the media would hyper-ventilate and scream that his political career was over. Back in 1982, Democratic Speaker of the House Tip O’Neill legendarily damaged the President’s and the Republican’s popularity by spinning that Reagan’s efforts to return Social Security to solvency was an effort to destroy the program. Perry understands that Social Security still remains popular; but he intends to use as a wedge issue against Democrats the fact that few Americans are willing to pay more taxes make the program solvent and that younger voters believe they will never receive the benefits they are paying for.

The Merriam-Webster Dictionary describes a Ponzi scheme as “an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks.” Social Security began collecting taxes in 1937 and began in 1940 to pay their first benefit recipient, Ida May Fuller. Ms. Fuller worked for three years under the Social Security program before she retired. The Social Security taxes on her salary were $24.75; her initial monthly check was $22.54; and she lived to collect $22,888.92. Essentially, Ms. Fuller earned a spectacular 925% return on her investment.

President Franklin Delano Roosevelt was quoted by his Labor Secretary Francis Perkins as trying to make sure Social Security would not be a swindle to future generations:

“Ah, but this is the same old dole by another name. It is almost dishonest to build up an accumulated deficit for the Congress of the United States to meet in 1980. We can’t see the United States short in 1980 any more than in 1935.”

Prior to the 1970s, the Social Security program was fairly well funded; because it took a highly visible Act of Congress to change the payments. But in 1972 Republican President Richard Nixon increased benefits by 20% and created a formula to automatically adjust Social Security payments by a cost-of-living-adjustment (COLA) tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers. President Jimmy Carter in 1977 more than tripled the Social Security tax on wages; but price inflation continued to drive COLA payments up faster than the taxes on wages.

When President Reagan tried to reinstate the original COLA calculation in 1982 he was pummeled by Democratic Speaker of the House, Tip O’Neill, who famously told the press that trying to change Social Security was the political equivalent of asking for the instant death of touching the “third rail” of an electric train. Republicans lost 26 Congressional seats in the following midterm elections, as the Democrats made preservation of Social Security the centerpiece of their campaign slogan: “It’s not fair … It’s Republican”.

In 1995, the Senate Finance Committee appointed a commission to study the amended CPI’s effect on Social Security solvency. The commission determined that the COLA calculation introduced in the 1970s overestimated the cost of living calculation envisioned by FDR by a value approximately 1.2% per year; but Congress took no action. Through 2011, the COLA has averaged 3.73%. Over the last 36 years the COLA resulted in benefit payments that were 47% above higher than the original plan supported by Roosevelt. Had the COLA not been passed into law the current $2.5 trillion Social Security Trust Fund would be three times larger and the program would solvent, instead of currently $5.4 trillion under-funded.

Perry understands that for the last twenty-six years no Republican Presidential candidate has been willing to address the unsustainability of the Social Security funding for fear of being pummeled by Democrats. But recent Rasmussen polling indicates that although Social Security remains a popular with a 73% approval; only 30% of likely U.S. voters favor raising taxes to make sure the Social Security and Medicare trust funds have enough money to pay all promised benefits. Rasmussen determined that only “26% of voters under 40 believe it’s even Somewhat Likely they will receive all of their promised Social Security benefits. That includes only 5% who say it’s Very Likely those benefits will be paid.”

The key to President Obama’s election victory in 2008 was the 22% voter preference he enjoyed in under 30 voters. Perry’s denigrating of Social of Security as a Ponzi scheme may turn out to be a powerful wedge issue that may turn younger voters away from Obama this fall.

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[HiTech RedNeck]

All that stuff and more has been publicly mouthed by various politicians. Some of us believed it, once upon a time. It’s not sustainable now, if it ever was. Someone has to take the bull by the horns and bring it to a stop.

[smoothsailing]

The first thought that crossed my mind when I heard Perry talk about Social Security was: “Oh oh. He just lot the race”, but in retrospect, I think the Republicans may may have have lost it all!

The Republicans may have lost it all? I don't understand.

[lowbuck]

Way, way back, actually in 1976 as I was in grad school I proposed that SS was a scam and needed to be radically overhauled.

Now, I was just a stupid 22 yo at the time, but, I suggested that we “grandfather” all those age 50+ and pay any excesses out of the general accounts.

Any under age 50 had a very simple choice to make. . .

On one hand they could go with SS and the deal was that they would get an annuity based upon payments in and adjusted life payments out (I called this the super safe option).

Or, they could elect to open a private account (with all the monies paid into SS to date being transferred to this account) and they and the funds from their employer must be deposited therein and they could choose from a selection of investments (ranging from simple MM to 100% stocks and anything in between). But, for this option they could not cash out until retirement, but, should they die before retirement their family got the funds).

This led to quite a lively debate, especially with my Democrat leaning fellow students. Ah, the stupid never learn!

Perry is on the right track, especially, when you realize in addition to asking the young workers to fund SS these same young workers are being squeezed out of getting into the job market by the same bunch of “boomers” who are staying in place to make up losses.

Go Perry, go.

[HiTech RedNeck]

He could stand to be a little more gracious about it to the average wage earner than saying in effect, “shame on you for believing generations of both Democrats and Republicans.” If an actual plan were brought out then there would be something to debate.

[shield]

Perry Ping....

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[dila813]

Shucks, who would have thought the truth works?

[Nick Danger]

In fact the SS fund was being raided in 1943. Instead of combining the funds, which is what happened under Johnson, they would put the SS money in the "Trust Fund" and then promptly "borrow" all that wasn't needed to pay current retirees back out again.

Let's be clear that the alternative was Socialism. If the Treasury hadn't borrowed it, the money would have been invested in private enterprise via stocks and bonds. Before too many years, we would have had -- literally -- government ownership of the means of production. In fact that may have been FDR's actual intent.

We all need to think really hard about where we would be as a country today if the government owned all the corporations. Does anybody see an Apple or a Microsoft in there? How about Google?

Wait, there's more. Once the government started unloading its stocks because the benefits going out had started exceeding the money coming in (which just happened last year), the stock market would tank as the single largest shareholder was known to be embarking on a long, slow, but really big selling spree. Which means that the trust fund would lose value. How much value? About the same as it's going to lose due to the Treasury reneging on the T-bills that SSA holds.

The shortfall isn't about money, or what happened to it. It's about demographics: the fact that there will so few workers per retiree compared to the 1940's and 50's.

[truthguy]

Social Security was a bad idea from the beginning and many people recognized and fought against it. The insidious thing about it and the reason the resistance was not as great as it could have been was that initially Social Security payments were a pittance. So it really didn't affect people all that much in the beginning.

Fast forward 50 years and we have a very different demographic. Now we are facing what those people who saw the danger in this program first talked about.

Social Security is a derivative of a Ponzi Scheme. It has the nefarious aspects of a true Ponzi Scheme but it differs just a bit. In some ways it's worse. I've never heard of a Ponzi Scheme that was compulsory. If you are reasonably intelligent you can spot a Ponzi Scheme a mile away and thereby stay away from them. Social Security is a compulsory tax. That's one of the major differences.

[sodpoodle]

***Shucks, who would have thought the truth works?***

And down the same road with OBummercare.

Government understands that these schemes are corrupt so they make them mandatory - under threat of fines (for employers and the self-employed).

Then they have the audacity to spend those confiscated funds or include non-contributors as beneficiaries.

Is SS a ‘pension/retiree plan’ or not? They never said!

[Atlas Sneezed]

I pretty much agree. Float the retirement age annually to ensure annual break even solvency.

Maybe keep stealing the “employer’s portion” for sooner retirees, and let the workers opt out entirely by investing their own contribution.

[cumbo78]

I think limiting it to a wedge issue amongst the young voter is wrong. I’m 51 and have been paying in for 35 years and I’m not counting on receiving a DIME from Social Security.

I am, however, quite curious to see Thad McCotter’s SAVE SOCIAL SECURITY PLAN, which will be unveiled tomorrow at Noon, at the Heritage Foundation. At least ONE candidate has a PLAN!

[truthguy]

Your post is interesting. You are only a couple of years older than me and just about at the same time I had the same thoughts about Social Security. My thoughts were initiated after listening to a lecture from Milton Friedman about the same topic. His ideas on Social Security were just about the same as yours if I remember correctly. He advocated a similar method of phasing out Social Security.

Did you get your ideas from Friedman or did you come to the same conclusions on your own. Doesn't matter really. We were all correct about how Social Security was eventually gonna collapse or need huge structural changes to keep it from collapsing.

BTW, I'm supporting Perry on this one as well. He's showing some courage by speaking the truth. Very refreshing.

[Comparative Advantage]

At 51 (BTW, I am but a few years younger), you have the worst of both worlds having paid into an insolvent system for 35 years with no real benefits to show from it when you reach the SS retirement age and too seasoned to take advantage of any possible alternative that should be made available to younger workers. As you know, real growth in retirement savings occurs when one is in his 20s and 30s. At 50 years old, it is nearly impossible to play catchup. The current system is immoral.

[Cincinatus' Wife]

I guess employing “egg heads” to find out what the people (voters) care about was a good idea.

It works!

[Harmless Teddy Bear]

Nonsense.

There are countries where they actually do invest the retirement money in the stock market and these countries are fiercely capitalistic.

[Paperdoll]

You are absolutely right. Unless he does, he may rue the day he ever broughgt it up.

[lowbuck]

Like I said, I was just a “stupid, know nothing, grad student at a third tier” university. Before going back to finish college I had a few years in the U. S. Navy (a great non profit!) and had seen my pay being “docked” for FICA.

Not being (quite) an Einstein, I was still able to figure out that my meager contributions would not be able to support me in my old age without some other kind of “kicker” getting involved. So in college I looked into things and figured out that the “kicker” was going to be “ME”(and anyone else unlucky enough to be getting a paycheck).

Thus, was my grand plan formed.

As for M. Friedman I later learned about his ideas in the WSJ, especially, in his (annually reprinted) editorial dealing with the problem with medical costs and how they were not a problem until the federal government (with the great society) got everyone eating from the trough back in the middle 60’s.

[smoothsailing]

It works well! Frame the debate, stand back and watch the fireworks, and be seen as the one who called it what it was. :)

[chris_bdba]

Heck I’m 50 years old and think there is little chance I will ever collect what hubby and I have been promised.

[sodpoodle]

George Bush attempted to solve this crisis with ‘partial privatization’.

In May 2001, he announced establishment of a 16-member bipartisan commission “to study and report specific recommendations to preserve Social Security for seniors while building wealth for younger Americans”, with the specific directive that it consider only how to incorporate “individually controlled, voluntary personal retirement accounts”.[77] The majority of members serving on Bill Clinton’s similar Social Security commission in 1996 had recommended through their own report that partial privatization be implemented.[2] Bush’s Commission to Strengthen Social Security (CSSS) issued a report in December 2001 (revised in March 2002), which proposed three alternative plans for partial privatization:

http://en.wikipedia.org/wiki/Social_Security_debate_(United_States)#George_W._Bush.27s_privatization_proposal