You Can't Cheat an Honest Man - James Walsh [155]
The main problem with this scheme: The eventual collapse only grows bigger over time.
Raising the eligibility age would also expand the program’s horizons. The move from 65 to 67 takes effect gradually, adding two months each year starting in 2003. (Some pundits argue that congressional staffers planned the change in such a way that their own eligibility wouldn’t be delayed.)
Increasing the move from two months a year to three would mean the eligibility age would be 68 in 2012. The older starting age would lower the program’s annual expenses by an additional 5 percent.
Many reform plans call for Social Security to invest its surplus funds more aggressively. In 1996, a White House advisory council on Social Security reform split on two close variations of this theme. One group supported a plan that would invest as much as 40 percent of reserves in stock-index funds, reduce average benefits by 3 percent, raise taxes on benefits, and extend coverage to excluded state and local workers.
The other group supported a plan that would replace today’s system with a two-tier benefit approach. One tier would provide a flat benefit financed by almost two-thirds of the current payroll tax. A second would consist of an annuity created by mandatory personal accounts funded with the remainder of the tax. A tax increase would be needed to cover costs of a 70-year phase-in.
“We have to go to seniors, and say, Look, we can’t keep this up,” said Nebraska Senator Bob Kerrey. “Yes, poverty is a concern. But please don’t tell me that every American over 65 is foraging in the alley for garbage or eating dog food. They’re going to Vegas with their COLAS—while kids don’t have computers in class.”
The problem with changing from a pay-as-you-go program to a prefunded private retirement program is that one generation would have to pay twice—for the retirement of its parents and then for its own. But it’s a reckoning which some generation will have to bear.
“The issue is simply that Social Security has become nothing but a giant Ponzi scheme where they’re relying on new contributions to make the payment to existing retirees,” says Jon Fossel, chairman of mutual fund giant Oppenheimer Funds Inc. “As with all Ponzi schemes, eventually you hit the wall when somebody wants their money back.”
Allowing private investment introduces market risks into the Social Security equation, but proponents of this solution argue that a solvent system with risks is better than no system. Besides, most workers already plan to rely on other sources—separate company pensions, private 401(k) plans and IRAs—to provide the bulk of their retirement income.
In a 1996 speech, CATO Institute President Edward Crane made the philospohical case for privatization:
...Take Social Security. Never mind that it’s the world’s largest Ponzi scheme that is going to go broke in a decade if it’s not privatized. Just consider what we did when we nationalized retirement income in America. ...we discouraged the personal responsibility of thrift, of saving for one’s own retirement. Some people assumed the government was doing that for them through Social Security. Many more were simply unable to save because of the burdensome payroll tax which is larger than the income tax for most Americans.
This elads to a provocative thoought. Maybe Social Security explains the proliferation of smaller Ponzi schemes.
Be Careful, the Schemes are Pervasive
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The pitch should sound familiar by now.
It’s tempting to think that the comparisons between Social Security and what law enforcement types would otherwise call a “classic Ponzi scheme” is some sort