Social Security Approaches Its Day of Reckoning
Social Security is very popular with Americans. Large majorities of Democrats and Republican like the program and want it to continue with no cuts in benefits, no increase in costs to taxpayers, and no real reforms of any kind. Unfortunately, Social Security is and always has been a scam that is rapidly approaching collapse. Economists point out that something has to give if the program is to avoid catastrophe, and so do the trustees who run Social Security.
A Ponzi Scheme With Federal Backing
“Imagine a charismatic salesperson promising sky-high returns to early investors, only to use the money from new investors to pay them off,” the Cato Institute’s Romina Boccia writes in a new report. “This is the infamous story of Charles Ponzi, whose name became synonymous with fraud. Now, consider the US Social Security system. Current workers’ payroll taxes fund the benefits of current retirees, much like how Ponzi’s scheme used new money to pay off old promises.”
Boccia reminds us that the famous Social Security “trust fund,” which many Americans wrongly believe contains money paid into the program to be disbursed at a later date, doesn’t really exist. “The trust fund essentially consists of IOUs or promissory notes that represent claims on future tax revenues.”
Until 2010, Americans paid more in Social Security taxes than the program paid out in benefits. The extra money wasn’t saved but passed on to be spent by the rest of the federal government in return for IOUs. That point passed as the ratio of workers to retirees dropped and seems unlikely to shift back given the country’s declining birth rate and aging population. That means the difference between revenues and expenditures is now made up, as it is across the rest of the federal government, by borrowing. As Social Security cashes in those IOUs, the Treasury will borrow an estimated $4.1 trillion plus interest to fund the program between now and 2033. “It’s like borrowing money to pay off credit cards,” Boccia notes.
What’s so special about 2033? That’s the year the well of IOUs is expected to start running dry.
“The Old-Age and Survivors Insurance (OASI) Trust Fund will be able to pay 100 percent of total scheduled benefits until 2033, unchanged from last year’s report,” the Social Security trustees revealed in the most recent annual report. “At that time, the fund’s reserves will become depleted and continuing program income will be sufficient to pay 79 percent of scheduled benefits.”
Social Security’s Disability Insurance fund is in better financial condition, but also m
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