The U.S. Securities and Exchange Commission says a Ponzi scheme is an investment fraud that “involves the payment of purported returns to existing investors from funds contributed by new investors.”
Republican presidential candidate Rick Perry has called Social Security a Ponzi scheme.
Granted, Social Security is a pay-as-you-go system where current workers fund benefits for current retirees and disabled recipients. But it is not an investment. It is not a scheme. It is an insurance program.
Money collected through payroll taxes to fund Social Security is placed in secure U.S. bonds rather than a volatile stock market where it could be lost. The monthly checks paid out don’t go to investors. They go to retirees and disabled people to pay for necessities like groceries, health care and heat.
Yet some candidates, including Perry, try to scare Americans into thinking that Social Security is so broken that it requires a major change — like privatizing it or handing it over to the states to manage. Such changes would be irresponsible and unnecessary. They are not efforts to shore up the program; they are efforts to dismantle it.
Congress can extend the solvency of Social Security the same way it has done numerous times — by making small changes in the way it is funded. Today’s officials just need the backbone to do so.
In 1937, employees and employers each paid 1 percent of taxable earnings to fund Social Security. Over the next 50 years, Congress increased that rate 20 times, and in 1990 it stood at 6.2 percent. Lawmakers have not increased that rate at all in the past 20 years — the longest period in history without an increase. (A recent, temporary reduction from 6.2 to 4.2 percent was instituted to allow workers to keep more of their earnings in an attempt to stimulate the economy.)
A small increase in payroll tax or lifting the cap that imposes the tax on only the first $106,800 of income could increase the solvency of the program for many years. Social Security funding needs tweaked. The program does not need to be overhauled.
And before proposing ideas that would essentially destroy the safety net, presidential candidates would do well to revisit exactly why Social Security was created in the first place. That history is particularly relevant today.
During the Great Depression, poverty was rampant. More than half of elderly Americans lacked money to cover basic needs such as food. The majority of states had some form of old-age pension programs, but only about 3 percent of older citizens in need received benefits, which averaged 65 cents a day.
Facing the worst economic crisis in U.S. history, the public demanded help. President Franklin Roosevelt delivered it by signing the Social Security Act into law in 1935. It was historic.
The government established a program in which working Americans contributed to a system providing help for older Americans. Seventy-five years later, it helps not only retirees, but also their children who are not burdened to financially support them. It also provides income to disabled people and children who have lost a parent.
Such a program would likely never be created today. Now politicians campaign on promises to cut the programs that help the less fortunate.
But we should strive to be a country where those fortunate enough to work give a little back to help those who cannot. We should want to help provide a limited monthly income so our parents and grandparents don’t have to work until the day they die.
That is what we do when we pay Social Security payroll taxes. That is a good thing — not something to be demonized and dismantled.
Copyright The Des Moines Register. Reprinted with permission.