Elon Musk was on Joe Rogan's podcast the other day, proclaiming
that Social Security is a Ponzi scheme.
With little or no legitimate earnings, Ponzi schemes
require a constant flow of new money to survive. When it becomes hard to
recruit new investors, or when large numbers of existing investors cash out,
these schemes tend to collapse.
Ponzi schemes are named after Charles Ponzi, who
duped investors in the 1920s with a postage stamp speculation scheme.
Who is Charles Ponzi?
https://en.wikipedia.org/wiki/Charles_Ponzi
Charles Ponzi (/ˈpɒnzi/; Italian: [ˈpontsi]; born Carlo Pietro Giovanni Guglielmo Tebaldo
Ponzi; March 3, 1882 – January 18, 1949) was an Italian charlatan and con
artist who operated in the United States and Canada. His aliases included Charles Ponci, Carlo,
Benny Broncko and Charles P. Bianchi.[Born
in Lugo, Italy,
he became known in the early 1920s as a swindler in North America for his money-making scheme.
He promised clients a 50% profit within 45 days or 100% profit within 90 days,
by buying discounted postal reply
coupons in other countries and redeeming them at face value in
the U.S. as a form of arbitrage.
In reality, Ponzi was paying earlier investors
using the investments of later investors. While this type of fraudulent
investment scheme was not invented by Ponzi, it became so identified with him
that it now is referred to as a "Ponzi scheme". His scheme ran for over
a year before it collapsed, costing his "investors" $20 million.
The Social Security
program DOES need to be improved, but slashing benefits is not the best
way to do it.
The government actually has a better solution:
Key Principles for Strengthening
Social Security
Testimony
of Kathleen Romig, Director
of Social Security and Disability Policy, Center on Budget and Policy
Priorities, Before the Senate Budget Committee
July 12, 2023
Chairman Whitehouse, Ranking Member Grassley, and members
of the committee, thank you for the opportunity to testify today. My name is
Kathleen Romig; I am the director of Social Security and disability policy at
the Center on Budget and Policy Priorities, an independent, nonprofit policy
institute that conducts research and analysis on a range of federal and state
policy issues affecting low- and moderate-income individuals and families.
Social Security, the nation’s most effective poverty
reduction and social insurance program, faces a funding shortfall about a
decade from now. It is critical that policymakers fill Social Security’s
financing gap — and that they do so in a way that keeps the program’s promises
to workers and beneficiaries and does more to protect people with low incomes
from hardship.
We Must Strengthen Social Security’s Financing
Social Security is the cornerstone of U.S. economic
security policy. It touches the lives of nearly every person nationwide, from
the 183 million workers paying into the system to the 67 million retirees,
survivors, disabled workers, and their families who are receiving benefits. In the 87 years
since its passage, Social Security has been tremendously successful, providing
a foundation of income in retirement, dramatically reducing poverty, and
financially protecting workers and their families against the financial risks
of premature death or disability. Some key facts about Social
Security’s critical impact include:
Figure 1
· Social Security is the largest source of income for most retirees. For 4 in 10 retirees, Social Security provides at least half of their income, and for 1 in 7 it provides at least 90 percent.
· Social Security benefits are much more modest than many
people realize. The average retirement benefit is
about $1,800 per month, or about $22,000 per year. For a person with average
earnings, retiring at age 65, Social Security benefits replace about 37 percent
of past earnings — and that’s before Medicare premiums are
deducted.[3]
· Social Security benefits play a vital role in reducing
poverty. Without Social Security benefits, a staggering 38 percent
of older adults would have incomes below the poverty line, all else being equal; with Social Security benefits,
10 percent do, using the official poverty measure. (See Figure 1.) Social
Security benefits lift more than 22 million people above the poverty line,
including 1 million children. Still, large numbers of seniors have modest
incomes — 1 in 3 have incomes below twice the poverty line.
· Social Security is not just a retirement program. It also provides important life insurance and
disability insurance protection. One in five beneficiaries receive disability
benefits or are young survivors of workers who died prematurely.
· Social Security is especially important for people of color, who are more likely than white seniors to face financial
insecurity in retirement due to persistent economic barriers, such as being
more likely to be paid low wages, and less likely to be offered workplace
retirement plans. Rates of disability and premature death are much higher for
Black workers, in particular, than for other workers. The high
rates of economic instability, disability, and premature death often have their
roots in racism and other forms of discrimination that have systematically
limited opportunity in education, labor market, and asset building.
In short, Social Security is critically important and vital
to preserve for future generations. Despite sensational rhetoric, Social Security
is not going bankrupt. However, it does face a long-term financing challenge. Though
Social Security has amassed trust fund reserves of about $2.8 trillion, its
costs are growing as more baby boomers retire. The program’s trustees estimate
that, if policymakers take no further action, Social Security’s trust funds
will be depleted in 2034. At that point, Social Security could still pay
three-fourths of scheduled benefits, relying on Social Security taxes as they
are collected. The long-term gap between Social Security’s projected income and
promised benefits is estimated at 1.3 percent of GDP over the next 75 years,
and the gap is fairly steady over the long term.
Alarmists who claim that Social Security won’t be around
when today’s young workers retire either misunderstand or misrepresent the
projections. However, policymakers must act to fully finance the Social
Security program that people want and deserve. Senator Whitehouse’s Medicare and
Social Security Fair Share Act shows us that it is possible to shore up Social
Security's financing without benefit cuts.
Here are the details on the Medicare and Social Security Fair Share Act:
Preserve Medicare and
Social Security while safeguarding benefits.
This legislation would
significantly extend Social Security solvency and would extend Medicare
solvency by an estimated 20 years.
Require taxpayers with
over $400,000 in income contribute a fairer share to Social Security. Most
taxpayers pay Social Security taxes on all their income. But because of the
Social Security tax cap of $160,200 in wages, wealthy taxpayers don’t have to
pay tax on wages above that cap or on any of their investment income. Those
making $1 million annually earned enough by February 28th to not have to pay
any Social Security taxes for the rest of the year. By applying the Social
Security tax to wage, self-employment, and investment income above $400,000,
the bill would ensure that no matter the source of their income, high-income
taxpayers would pay the same tax rate on their incomes exceeding that
threshold.
Require taxpayers with
incomes above $400,000 to contribute more to Medicare. Taxpayers with more than
$250,000 in earned and investment income currently have to pay an additional
3.8% tax on income above that amount. This legislation would increase that rate
for income above $400,000 by 1.2%.
Close a loophole in the law that favors high-earners. Right now, the owners of pass-through businesses like hedge funds, private equity firms, and certain oil and gas companies can avoid Medicare taxes and the Net Investment Income Tax by disguising earned income as distributed business profits. The bill would ensure that such taxpayers making more than $400,000 would contribute or Medicare and Social Security Social Security on their pass-through business income.
Social Security’s shortfall is real, but manageable. There
are two primary ways to close the gap: cutting Social Security benefits or increasing
contributions to the trust funds.
Cutting Social Security could hurt the millions of
beneficiaries who rely on benefits as the foundation of their income. Because
most retirees have modest incomes, save for some at the top of the income
spectrum, most benefit cut proposals would reach low- and middle-income
beneficiaries, undermining their financial security. About 1 in 4 older
households live on incomes of less than $20,000; about half live on less than
$50,000; more than 3 in 4 live on less than $100,000. Most low-income
older adults have very little pension income, if any.
Some policymakers have proposed deep and broad Social Security cuts. For example, an often-discussed House Republican Study Committee proposal would raise Social Security’s full retirement age to 69 or 70, which would cut benefits by 20 percent. Raising the retirement age would cut benefits for all new retirees — and those cuts would fall hardest on lower- and middle-income beneficiaries because they rely most heavily on Social Security benefits.
For example, a retiree with income at the 90th percentile
receives, on average, about one-seventh of their income from Social Security,
with ample income from pensions, earnings, or retirement accounts. A 20 percent
cut in Social Security benefits for this retiree would result in just a 3
percent reduction in total income.[7] But for a
retiree who relies solely on Social Security, a 20 percent benefit cut means a
20 percent reduction in total income. As this example makes clear, raising the
age at which people receive full retirement benefits is a regressive benefit
cut.
Proponents of raising the retirement age often justify the
proposal by pointing to life expectancy gains, effectively arguing that people
can expect to receive benefits for more years than previous generations
did. However,
low-income beneficiaries typically have not seen the life expectancy gains that
higher-income people have experienced.
It’s also important to understand that benefit cuts would
take many years to generate substantial savings for Social Security. If
policymakers did choose to cut benefits, they would likely allow workers time
to prepare for reduced benefits by exempting current and near-retirees and
phasing in changes gradually. For example, many proponents of raising the
retirement age would do so only for workers under 40 — or even under 30.These
cuts would not save any money for decades — but Social Security’s shortfall is
about ten years away.
Policymakers should address Social Security’s long-term shortfall
primarily by increasing Social Security’s tax revenues. Because the U.S. population is older than it was in
previous generations, maintaining Social Security will necessarily require a
larger share of our nation’s resources.
Trends over the past 40 years also justify boosting Social
Security’s income — especially from those with high incomes and wealth, who can
most afford to contribute more. Since the last time policymakers addressed Social
Security financing, in 1983, inequality in the United States has skyrocketed — in
longevity, in earnings, and especially in wealth. Policymakers should take
these stark increases in inequality into account when deciding how to secure
Social Security’s future:
· Higher-income people now enjoy significantly longer
retirements. Among male workers, Figure 2 shows that longevity for the bottom half of
earners has stagnated. Some groups are even living shorter lives than their
parents or grandparents.[9] Longevity has
also increased more among high-income women than lower-income women. Because of
these differences, higher-income beneficiaries receive benefits for more years
on average than lower-income beneficiaries. Longevity gains among high-income
workers do not justify increasing the retirement age — and cutting benefits —
for all.
· Wages have grown more among high earners than middle and lower earners, even taking into account recent trends that have seen
stronger wage growth among lower-paid workers. Earnings of the top 1 percent —
and especially the top 0.1 percent — have grown rapidly, resulting in an
increasing share of earnings above Social Security’s tax cap.[10] (See Figure
3.) This
growing inequality should be addressed by expanding Social Security’s payroll
tax base.
·
A large and increasing share of the
richest Americans’ income comes from investment and “pass-through” business income —
not the paychecks that almost all other workers rely on, and from which Social
Security gets the lion’s share of its funding. As my colleagues at CBPP
have explained, much of the income of very wealthy people is either not taxed or
enjoys preferential rates. The ultra-wealthy should pay more to
address a broad range of the nation’s needs and create a fairer tax code, and
shoring up Social Security could be one use for this revenue.
We Should Improve Benefits for Those Who Need Them Most
While filling Social Security’s financing gap is a key task
for policymakers, it is not enough. When policymakers update Social Security
for the next generation, they should also improve benefits for those who need
them most.
Social Security is a powerful anti-poverty program, lifting
more people above the poverty line than any other government program. However,
significant poverty and hardship remains among the older and disabled people
Social Security is designed to help. The elderly poverty rate is 10 percent (6
million people), and the poverty rate among non-elderly adults with
disabilities is even higher — 25 percent (4 million people)
And even more beneficiaries are near poverty — almost 30
percent of seniors (16 million people) have incomes of less than 200 percent of
the poverty line. Poverty is significantly higher among older women, because
they tend to earn less than men, take more time out of the paid workforce, live
longer, accumulate less savings, and receive smaller pensions. Poverty
among Black and Latino older adults is roughly two times as high as for older
white adults, due in large part to a significant racial retirement wealth gap.
Social Security needs to be more generous to beneficiaries
with the lowest incomes. Its “special minimum benefit” for long-term low
earners failed to reach many poor seniors even at its peak, and today, because
its value has dramatically eroded, it helps almost no one. Its design narrowly
focused on long-term low earners, so it did little for low-income beneficiaries
whose benefits are low because they had career interruptions, often because of
caregiving, poor health, or job losses.
This group includes large numbers of women who took time
out of the labor market to care for children as well as older or disabled
family members. Women disproportionately provide unpaid family caregiving,
which leads them to have lower Social Security benefits than men, contributing
to higher poverty rates among female beneficiaries. To make a significant
impact on poverty among seniors and disabled people, policymakers must target
additional support to low-income beneficiaries whose benefits are low for a
variety of reasons, not just persistent low wages.
In closing, now is the time to generate ideas to strengthen
Social Security for generations to come. Senator Whitehouse’s new bill shows
that raising revenue is key to protecting Social Security for future
generations, without making devastating cuts that put people’s economic
well-being at risk.
