Category Archives: Social Security

On Social Security

“Social Security is a “pay-as-you-go” system. This means that when you work, the government takes your money and gives it to Social Security recipients. In order to get workers to accept this system, the government promises to take other people’s money and give it to you when you retire. Think of it as an exponentially larger version of Bernie Madoff’s Ponzi scheme.

As long as a lot of people die before collecting any benefits, or die without collecting many benefits, the system is financially sound. . . .

Each worker’s income below about $106,800 is taxed at a 12.4 percent rate. There are no deductions for this tax. All income is taxable income. Even those in the lowest income brackets have roughly one-eighth of their income taken from them to fund the Social Security system.

Few workers, however, understand the tax burden of the Social Security system. On their paychecks, they see that 6.2 percent of their gross pay goes to pay for Social Security. What they don’t see is that employers match this tax payment with an equal 6.2 percent payment. It may seem that employers are paying half of the Social Security taxes, but that’s not the case. Even though the employers are legally liable for one-half of the tax, they shift the tax onto workers in the form of lower gross wages. Therefore, the Social Security tax burden, 12.4 percent of each worker’s gross pay, falls on workers. Half of this burden is hidden from the workers.

Currently, the Social Security Administration is running a budget surplus. . . .

What has happened to this surplus? The SSA took in $180 billion more than it spent in 2008. However, the federal government spent this $180 billion on other programs. Since the funds were spent on something other than Social Security, the government declares that it loaned itself the $180 billion, calling such “lending” intragovernmental debt. . . .

Think of this type of lending for a moment. The federal government is in debt to itself. Compare this to debt in the private sector. No business declares that it’s deep in debt because it loaned itself money. It’s the same with families. Parents don’t lay awake at night trying to figure out how to repay the money they loaned themselves. The government, however, thinks that it makes perfect sense to collect $100 of tax revenue, spend the $100, and then declare that it now owes itself $100. This scheme is not limited to Social Security. Currently, federal intragovernmental debt for all programs totals $4.3 trillion. . . .

Making the system sustainable will require higher taxes or benefits reductions. These reductions could be achieved by either reducing the benefits per recipient or reducing the number of beneficiaries — say, by raising the minimum age requirements. The solution is to give workers a negative rate of return on the money that is taken from them. It would also help if some workers collected no benefits at all. Workers who are taxed and then die before collecting any benefits are a boon to the system. Maybe the federal government should rethink its war on tobacco.

This system is a massive income-redistribution scheme, taking one-eighth of most workers’ incomes. The total tax burden is hidden from the workers. The tax revenues have been used to cover the deficits in the rest of the government’s budgets, and the only way to make the system sustainable is to give the participants a negative rate of return on their money.

The Social Security system has run its course. It’s unfair and it’s economically destructive. It’s time for the program to be abolished.” (Read more at mises.org)

Note: The Social Security Act was signed into law August 14th, 1935 by FDR. In terms of liberty, the WWII generation was not our greatest, but our worst.

Social Security is also a Ponzi Scheme

“Charles Ponzi, an Italian immigrant, started the first such scheme in Boston in 1916. He convinced some people to allow him to invest their money, but he never made any real investments. He just took the money from later investors and gave it to the earlier investors, paying them a handsome profit on what they originally paid in. He then used the early investors as advertisements to get more investors, using their money to pay a profit to previous investors, and so on.

To keep paying a profit to previous investors, Ponzi had to continue to find more and more new investors. Eventually, he couldn’t expand the number of new investors fast enough and the system collapsed. Because he never made any real investments, he had no funds to pay back the newer investors. They lost all the money they “invested” with Ponzi.

Just like Ponzi’s plan, Social Security does not make any real investments — it just takes money from later “investors,” or taxpayers, to pay benefits to earlier, now retired, taxpayers. Like Ponzi, Social Security will not be able to recruit new “investors” fast enough to continue paying promised benefits to previous investors. Because each year there are fewer young workers relative to the number of retirees, Social Security will eventually collapse, just like Ponzi’s scheme.” (Read more from The Motley Fool)

Ron Paul on Social Security during the Republican debates: