Okay, something churning around the Internet turned up on a friend’s Facebook feed claiming Social Security had been renamed “Federal Benefit Payments” and calling it a Ponzi scheme. He asked me to look at it, so I did.
My one sentence response is that if this thing does come your way, do not forward it.
Here’s why: First, it’s been kicking around the Internet for at least 14 years and has been fact-checked by Snopes (2012), USA Today (2020), and Yahoo.com1 (2012 and 2025) and they all said the lead claim about the supposed change in name is crap. (Being professional and overly polite, they called it “false,” but yeah, “crap” is what they clearly meant.) In fact, the term “Federal Benefit Payment” has been used for Social Security outlays ever since the program was established in 1935.
As for everything else, Snopes said it well: It “gets nearly everything wrong.” It’s an anti-Social Security screed with the usual tropes that I first encountered in 2004 and which have changed very little in the decades since.
For example, it uses questionable numbers, including overstating the tax burden and making no allowance for employer contributions. It offers rosy scenarios of “coulda-beens,” of how rich you could have been if only - oh if only - Social Security taxes had not drained your ability to make market investments, while basing such calculations, as they always do, on assuming you invested 15% of your gross income every year of your entire working life, never lost on an investment, never withdrew a penny for any reason, and never had to pay any capital gains tax.
Beyond that, calling Social Security a “Ponzi scheme” is utterly false to the point of absurd if not consciously misleading. A Ponzi scheme is a type of fraud involving paying investors “returns” out of the money coming in from additional investors. It inevitably collapses under its own weight when it runs out of enough new investors. Your taxes going into Social Security are not making an investment in the hope of future profit, they are buying insurance against the impact of future events including loss of income because of retirement, disability, or loss of a spouse or parent - which is why what we think of as Social Security is more properly called “Old Age, Survivors, and Disability Insurance” or OASDI.
The screed also says of Social Security “They took our money and used it elsewhere.” The word “elsewhere” goes curiously unexplained - maybe because “invested the money in US Treasury bonds” (precisely the sort of “low-risk” investments the author advocated) didn’t sound sufficiently conspiratorial, especially after invoking the all-encompassing scare term “they.”
What’s more, the statement “They didn’t pay interest on the debt they assumed” is garbled nonsense. The Social Security system is barred by federal law from borrowing money so has assumed no such debts.
But that does relate to the final issue, the claim that “the money won’t support us for very much longer,” the by-now standard “SS is going bankrupt!” fear-mongering I first heard from George Bush in 2005 and has been a Chicken Little incantation since -including from, as I expect a number of us have conveniently forgotten, the Obama-established Simpson-Bowles Commission, which became known as the “Cat Food Commission” because of its proposal for sharp cuts in social services including Social Security and Medicare.
The point is a bit complex, so excuse me as I go on for a bit.
There is a narrow legal definition for use in bankruptcy proceedings under which being “bankrupt” is equated with being insolvent, that is, being unable to meet all current debts and without - this is an important part often overlooked - a reasonable expectation of being able to meet them in the future. In such a proceeding, the assets of the bankrupt party are taken by the court and distributed to creditors.
But no one imagines Social Security going into bankruptcy proceedings. There will be no creditors banging on its doors. And in fact if we’re going to speak in narrow legal terms, there is no way SS could go “bankrupt” because, again, it does not have “debts.” The money in the fund was not obtained by loans and it was not obtained by accepting services with a promise of future payment. In fact, by virtue of those bonds it buys, which are in effect a loan to the rest of the government, the system is a creditor, not a debtor.
What the system has are “obligations,” which are not the same thing. Obligations are promises of future behavior as opposed to legal financial commitments arising from past behavior (as debts are). As a crude illustration, consider a union which has a contract with a company under which the workers are supposed to get a 3% raise next year. The employer has a contractual “obligation” to pay that raise, but is not in “debt” to the workers. If the employer pleads poverty, threatens to close up shop and move, and pressures the union into givebacks so that the raise becomes 1%, then that is now the obligation. The employer has not failed to pay any “debt” because the obligation for that extra 2% never came due.
The obligations Social Security has are ones it has as a federal government program, that is, ones it has taken on itself as a matter of law. It’s a social contract rather than a legal one and one which the government has the legal authority to change as it sees fit. The government could, if it chose, simply slash future benefits to whatever degree it felt necessary and :poof: any “insolvency” is gone.
That - it shouldn’t be necessary to say but probably is - does not mean the government should, would, or would ever have the need to do any such thing. It does mean any claim that SS is going “bankrupt” is nonsense.
Rather, what’s being claimed as “bankruptcy” is actually the prospect that the surplus in Social Security accounts that was deliberately built up since the Reagan years specifically to deal with the demographic bulge of the “baby boom” generation2 will have been used up and the system would be back on the pay-as-you-go status it has been on for most of its just-shy of 90 years of existence - and all the doom-saying is about the fact that if nothing is done and no changes are made3, benefit levels would be something less than 80% of projected ones.
But note that’s “projected,” not “current,” which is important because the way benefits are calculated means those projected benefits are higher than today’s current ones. In fact, they could wind up being higher in real terms - that is, after accounting for inflation - than current ones. And remember, that is if nothing is done, no adjustments are made, in the meantime, ignoring the fact that the system has been tweaked any number of times across its history and can be again.
So I repeat: DO NOT forward this.
---
1 This linked article has the text of the screed, which appears almost if not completely identical to the one I saw. That was on Facebook, which I never use, and I’m not about to dig for it there to check to see if every word is the same.
2 Note that this means that those “boomers,” the ‘60s generation, not only paid its share to support those dependent on the program, they in effect pre-financed a fair part of their own retirement.
3 There are already multiple proposals, the best of which and so of course the one least likely to be adopted is to remove the cap on income subject to the tax, which alone would support the system for scores of years into the future.
Posts
No comments:
Post a Comment