Musk says “Social Security is the Biggest Ponzi Scheme of all Time.” Agree?
In contrast, PolitiFact says SS is not a Ponzi scheme. Who is correct?
Fact-Checking PolitiFact
Please consider the PolitiFact Tact Check on Social Security
During the three-hour Feb. 28 appearance, Musk said, “Social Security is the biggest Ponzi scheme of all time.”
Critics of President Donald Trump and Musk, a White House adviser, used Musk’s comment as evidence that Trump was looking to cut Social Security, something that Trump repeatedly said he would not do in his second term.
[A White House advisor used Musk’s comment as evidence Trump would cut SS? Can I have a fact check on that?]
“Social Security is a transparent, legally mandated, government program that can remain solvent through adjustments to both funds flowing into the system and flowing out of the system,” said Eric R. Brisker, finance department chair of the University of Akron’s College of Business.
The PolitiFact Rebuttal
No. 1: Social Security is not fraudulent.
A Ponzi scheme “is a fraud intended to mislead investors,” said Christina C. Benson, an Elon University associate professor of business law. “Social Security is a legally mandated system that has been in place since the 1930s to serve as a critically important social safety net that allows working Americans to save towards retirement.”
In fact, “nearly every major developed country in the world has a similar safety net and retirement system in place,” Benson said.
No. 2: Social Security’s operators do not take a cut.
Unlike with Ponzi schemes, Social Security is not a profit-generating operation, and the officials who run it do not “cream off money for themselves,” Steuerle said.
No. 3: Social Security is operated in the open.
“Social Security is a transparent, government-run program with clear funding mechanisms, compared to Ponzi schemes, which are fraudulent and based on deception,” Brisker said.
No. 4: Social Security has built-in oversight.
Unlike a Ponzi scheme, Social Security has “many layers of oversight, regular auditing, regulation, and legal and financial systems in place to ensure accuracy and transparency,” Benson said.
PolitiFact Ruling
Social Security is not fraudulent, is transparent, has multiple layers of oversight and doesn’t promise unrealistic returns. Congress can act to address the program’s fiscal imbalance.
We rate the statement False.
Rebuttal #1: When the Population Grows No More
Dr. Paul A. Samuelson, a Nobel laureate and professor emeritus of economics at the Massachusetts Institute of Technology has chimed in.
Please consider the New York Times 2002 article When the Population Grows No More
Wealthy countries may find more problems than solutions as their populations begin to plateau or decline. Because of advances in medicine, smaller populations are also older populations. Fewer people are being born, and the elderly in need of support are growing in number.
These dynamics can cause havoc in pay-as-you-go retirement programs, where younger workers pay for their elders’ benefits through taxes. In 1958, Dr. Paul A. Samuelson, a Nobel laureate and professor emeritus of economics at the Massachusetts Institute of Technology, demonstrated what is sometimes called the ”biological rate of return.” The benefits paid can keep rising, as long as each generation grows in size.
“The pay-as-you-go systems work as a nice Ponzi game when you have a big increase in population,” Dr. Samuelson said in an interview last week. “Everything goes in reverse when you’re in a declining population.”
Rebuttal #2: Social Security Chimeras
Also consider the January 11, 1999 NYT article in which Milton Friedman’s discusses Social Security Chimeras
Social Security has become less and less attractive as the number of current recipients has grown relative to the number of workers paying taxes, an imbalance that will only get bigger. That explains the widespread support for individual investment accounts. Younger workers, in particular, are skeptical that they will get anything like their money’s worth for the Social Security taxes that they and their employers pay. They believe they would do much better if they could invest the money in their own 401(k)’s or the equivalent.
But if that is so, why replace only part and not all of Government benefits? The standard explanation is that this is not feasible because payroll taxes — or part of them — are needed to pay benefits already committed to present and future retirees. That is how they are now being used, but there is nothing in the nature of things that requires a particular tax to be linked to a particular expenditure.
Security Administration calls a social insurance program is equivalent to private insurance; that, in the Administration’s words, ”the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund.”
Balderdash. Taxes paid by today’s workers are used to pay today’s retirees.
When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money or reducing other Government spending. And that is true no matter how large the ”trust fund.”
The present discounted value of the promises embedded in the Social Security law greatly exceeds the present discounted value of the expected proceeds from the payroll tax. The difference is an unfunded liability variously estimated at from $4 trillion to $11 trillion — or from slightly larger than the funded federal debt that is in the hands of the public to three times as large. For perspective, the market value of all domestic corporations in the United States at the end of 1997 was roughly $13 trillion.
The economist Martin Feldstein, in a 1995 article in The Public Interest, argued that contributions must be mandatory for two reasons. ”First, some individuals are too shortsighted to provide for their own retirement,” he wrote. ”Second, the alternative of a means-tested program for the aged might encourage some lower-income individuals to make no provision for their old age deliberately, knowing that they would receive the means-tested amount.”
The paternalism of the first reason and the reliance on extreme cases of the second are equally unattractive. More important, Professor Feldstein does not even refer to the clear injustice of a mandatory plan.
The most obvious example is a person with AIDS who has a short life expectancy and limited financial means, yet would be required to use a significant fraction of his or her earnings to accumulate what is almost certain to prove a worthless asset.
More generally, the fraction of a person’s income that it is reasonable for him or her to set aside for retirement depends on that person’s circumstances and values. It makes no more sense to specify a minimum fraction for all people than to mandate a minimum fraction of income that must be spent on housing or transportation.
I find it hard to justify requiring 100 percent of the people to adopt a Government-prescribed straitjacket to avoid encouraging a few ”lower-income individuals to make no provision for their old age deliberately, knowing that they would receive the means-tested amount.” I suspect that, in a voluntary system, many fewer elderly people would qualify for the means-tested amount from imprudence or deliberation than from misfortune.
I have no illusions about the political feasibility of moving to a strictly voluntary system. The tyranny of the status quo, and the vested interests that have been created, are too strong. However, I believe that the ongoing discussion about privatizing Social Security would benefit from paying more attention to fundamentals, rather than dwelling simply on nuts and bolts of privatization.
Let’s sum of the cases.
Understanding the Ponzi Debate
- PolitiFact mostly rests on the fact that Social Security is government sponsored. Government can always extract more taxes to pay for the program.
- Samuelson and Friedman note the demographic time bomb in which taxes paid by today’s workers are used to pay today’s retirees and we are running out of people to pay the benefits promised.
Who has the better argument?
When Will the Social Security Trust Fund Be Depleted?
The Center on Budget and Policy Priorities discusses What the 2024 Trustees’ Report Shows About Social Security
- The trustees estimate that if policymakers take no further action, Social Security’s combined Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust fund reserves will be depleted in 2035. This is one year later than projected in last year’s report.
- While most of Social Security’s benefits are funded by the payroll taxes collected from today’s workers, the program has also accumulated $2.8 trillion in trust fund reserves over the past three decades. During that period, Social Security’s income exceeded its costs, and the program invested the surplus in interest-bearing Treasury securities. Over the next 11 years, those reserves will make up the difference between Social Security’s income and costs.
- After 2035, Social Security could still pay roughly 83 percent of scheduled benefits using its tax income even if policymakers took no steps to shore up the program.
There Is No Trust Fund
For starters, there is no Trust Fund. It’s all been spent and then some.
If there was a Trust Fund, then US government debt would not be over $36 trillion and rising rapidly. ($29 trillion debt owed by the public).
The Trust Fund is a “shell game” in and of itself. It is an accounting mirage that does not exist.
What Are You Entitled To?
Assume you are about ready to retire or already have.
Would you say that you are entitled to your benefits because of all the money you have paid in?
If so, that’s logically inconsistent with the notion that Social Security is a Ponzi Scheme in which paxes paid by today’s workers are used to pay today’s retirees.
You don’t fund your retirement, you fund someone else’s. Logically, the sad reality is you are only entitled to what someone else agrees (is forced) to pay for yours.
Are you in favor of making everyone to pay more for you, so you can get what you are allegedly entitled to?
This is getting pretty messy, isn’t it? But we are really just getting started with the mess.
Government-Sponsored Ponzi Schemes
Whether or not a Ponzi-Scheme is government sponsored, at some point the payback is negative, and hugely so.
Is anyone ever entitled to anything for participating in Ponzi schemes?
Let me ask again: Are you in favor of making everyone to pay more for you, so you can get what you are allegedly entitled to?
If not, then what?
Donald Trump on Social Security
President Trump says “I will not lay a finger on Medicare or Social Security. … These are benefits for our seniors. We are not going to touch it. There are many other things we can do.”
And in 2023, candidate Trump said “Under no circumstances should Republicans vote to cut a single penny from Medicare or Social Security.”
Fact Check on Not Touching Social Security
Trump has proposed not taxing Social Security payments. If enacted, this would increase the deficit and bump up the date on which full benefits can be paid.
Is Social Security is the Biggest Ponzi Scheme of all Time?
If you answer “yes”, then you agree that President Trump is voluntarily expanding the biggest Ponzi scheme of all time.
As noted … “The tyranny of the status quo [now led by Trump] is too strong to attempt to fix.”
But hey, don’t worry, Trump will be gone in four more years. Then it will be someone else’s problem.
Meanwhile, expanding the Ponzi scheme makes perfect political sense today, and forever into the future, until it blows sky high, because eventually all Ponzi schemes do by definition.
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Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
On March 12, I commented Lutnick Says Tariffs Can Eliminate the IRS and Balance the Budget
Lutnick: “We’re going to make the External Revenue Service replace the Internal Revenue Service.”
I ran the math on that ludicrous idea. Team Trump only needs to bring in $7 trillion in tariffs on $3.3 trillion in total imports.
Then we need to faithfully collect 200 percent tariffs on everything with of no trade frictions, no retaliations, and full compliance.
In Trumperland, contradictions have no meaning, so this is entirely possible.
See above link for detailed analysis.
Addendum
Please consider How the Supreme Court upheld Social Security
On May 24, 1937, the Supreme Court decided in two separate but related cases that the Social Security Act of 1935 was constitutional. In Steward Machine Co. v. Davis and Helvering v. Davis, the Court upheld the Act as a proper use of the spending power.
The Court’s March 1937 decision in West Coast Hotel v. Parrish upholding Washington’s minimum wage statute has been most often connected to the “switch in time” whereby the Court’s majority began upholding New Deal legislation under threat of court-packing from President Franklin Delano Roosevelt. Shortly after that decision came out, Steward Machine Co. v. Davis and Helvering v. Davis saw the Court continue to uphold broad national power—this time, to tax employers to pay for benefits under the act and for Congress to use its spending power to push states to pass laws to fund unemployment compensation.
Justice Benjamin Cardozo wrote the Court’s majority opinion, determining that the power of Congress to tax was as extensive as the plenary power of states to tax.
Helvering focused on Title II of the Social Security Act, which authorized grants of money for “Old Age Benefits” in order to assist states in the administration of their unemployment compensation laws. It was the product of a suit by a shareholder of the Edison Electric Illuminating Company, asking for the company to be enjoined from making payments under the law because the taxes on the employer and the employees were unconstitutional.
Again, Cardozo wrote the majority in a 7-2 decision, upholding the Social Security Act as a proper use of the spending power for the “general welfare”— and in this case, Justice George Sutherland did not dissent. Cardozo stated:
Social Security is thus considered a tax, not an iron clad guaranteed of anything. Congress can change that at will, but won’t.
Eliminating Income Taxes on Social Security
Penn Wharton discusses Eliminating Income Taxes on Social Security
Eliminating taxes on Social Security benefits reduces incentives to save and work while increasing federal debt.
The policy primarily benefits high-income households nearing or in retirement while harming households under thirty and all future generations across the entire income distribution.
Thus, If you side with Musk, then you logically agree that President Trump voluntarily supports and seeks to expand the biggest Ponzi scheme of all time.
