In correspondence this morning, a friend suggested Social Security was some sort of Ponzi schemes.
No, that’s wrong.
It’s talking points propaganda circulated by the Cato Institute whose Wall Street funders *really* want to privatize Social Security.
Social Security is actually one of the best funded pension systems in the world, a point I used to make regularly when I was Director of Communications for what is now called the Alliance for Retired Americans — the AARP of unions.
It is not remotely like a Ponzi scheme.
For starters it has a large team of actuaries attached to it, actuaries I have wrestled with on two important points.
The wrestle I *lost* is an important one.
Social Security actuaries, “out of an abundance of caution,” project future income and outgo assuming the US goes into a decade-long depression equal to the worst 3 years of the Great Depression.
Is that reasonable?
They argue, of course, that they have to be *extremely* cautious.
Which is fine, but it results in some amusing predictions.
For the last 50 years, Social Security actuaries have been predicting future Social Security insolvency using Great Depression projection data. So when Social Security actuaries say, in 1990, that Social Security will “go broke” in 12 years, we find that 12 years later they say it will “go broke” in another 13 years, while 13 years later, they say it will “go broke” in 14 years.
And of course it doesn’t go broke — it can still pay out 95 percent of what was promised (complete with annual COLA).
So what argument with SSA did I win (of sorts)?
Well I got a wee bit over-caffeinated one day and started doing math on three or four Starbucks napkins.
Long story short, I figured out that if the Social Security tax cap was removed (as it was for Medicare), then Social Security would *never* go broke even using the Depression-era data.
I called up the #2 actuary at the Social Security Administration and asked her the question and faxed over my math.
Her reply was pregnantly evasive; I had to get a Member of Congress to ask her or the chief actuary that question.
So I did — I made a few phone calls and went down to Bernie Sanders’ office, and HE asked the Social Security Administration that question.
And YES, the Social Security Administration replied that it was indeed a simple and complete fix!
I promptly ordered 10,000 painters caps that said “remove the cap,” and held senior citizen rallies and teach-ins around the country.
I also ran a quiet internal check. You see, I worked for Unions, and most of the national Union presidents (never call them a “Union Boss”) were paid enough to be Social Security tax exempt sometime in the year.
I ran the numbers for two dozen big union presidents and winced at the results. My proposal was going to cost all of them thousands of dollars.
What to do?
I bit the bullet and wrote a lead article for our in-house 400,000 circulation magazine about the “secret” of the gilded class.
The secret of course, was that the rich were getting a big pay raise no one else knew about.
No other tax STOPS when you make more money!
To illustrate the piece, I had Bill Gates stopping Social Security taxes 5 minutes after midnight. I had other big names in there too — I remember Diane Sawyer made $7 million a year at the time.
Members of Congress stopped paying Social Security taxes on July 1st back then.
But the folks that scrubbed the floors in Congress?
They paid Social Security taxes all year long.
So did most workers, including most union members.
Whenever Union presidents would meet with retirees to talk about the “Clinton Care” health insurance package (I wrote the AFL-CIO training package on that), they also got hit with questions about the Social Security tax cap.
Long story short, the issue was pushed up to the top of the AFL-CIO decision tree from the union floor.
At an AFL-CIO Executive Council meeting on the subject in Chicago, it got a bit testy and the proposal remained unresolved. I feared someone else was doing the math of what this proposal would cost individual union presidents.
At the next meeting in Bal Harbor, Florida, however (and with a thousand seniors wearing “remove the Social Security tax cap” hats), the official position of the AFL-CIO on Social Security was amended to endorse removing the taxable earnings cap.
Victory!
A final bit to this story.
I was in Los Angeles at the Biltmore Hotel doing a big union retiree convention with all kinds of political and union wheels, when Steel Workers president George Becker came up to me. He appeared very serious.
I had never formally met Becker before, but he rather aggressively tapped me in the chest.
“You the guy who was pushing to raise the Social Security tax cap?” he asked.
I flashed back to what I remembered each Union president making. My proposal was going to cost Becker north of $6,000 — maybe more.
I braced myself, and said I was.
He punched me in the chest again with his finger and smiled. “Good job!”
I let out a huge sigh of relief.
Today, eliminating the Social Security tax cap is now the official position of the Democratic Party.
As for what Social Security really is, that’s simple: the most popular and successful government program in the US, and arguably the world.
It has never missed a payment and, unlike most defined benefit pensions, it has a cost of living adjustment.
Unlike most 401-ks, it cannot be robbed by folks who want a bigger bass boat or a bigger house.
Even today, most Americans retire with *nothing* other than Social Security.
You think you’re a stock-picking genius? Cool. What’s a no-load fund? What’s a zero coupon bond? Who is Robert Citron?
If you want to play with money, you’re still free to do so, but I’m always amazed that so many of the folks who want to play poker against card sharps don’t even know the basics of the game.
So what else about Social Security?
Social Security is progressive in that if you make more than $60,000 a year or so, you *may* pay more in than you pull out, and if you make less, you *may* collect more than you pay in.
The bend points here depend to some extent on sex (women earn less and live longer), race, etc.
Insurance programs are, by definition, risk pools, but Social Security has public service actuaries attached to it in order to maximize security, rather than hedge fund managers looking to maximize profit, or corporate paymasters looking to underfund the company pension program.
As with all insurance, current enrollees are paying a portion of what is going to current retirees.
As with every bank, the money collected in the past is not sitting in Scrooge McDuck’s vaults, but is being put to work in the community funding housing, education, roads, health care, defense, etc.
Bottom line: Social Security is not a Ponzi scheme in any way, shape, or form.
You want a Ponzi scheme?
Look at Tesla.
My notes about *that* can be read >> here
Let’s just say: Caveat emptor!
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