In one previous post I described all government social welfare programs (including Social Security) with the intentionally oxymoronic phrase 'forced charities', because such welfare programs must operate via coercion, given that governments can only provide to one individual what they have taken from another — whereas charity is voluntary.
If you recall the Bernie Madoff scandal, you know that Madoff made large sums of money defrauding wealthy investors with a Ponzi like investment scheme. As with all Ponzi schemes, Madoff would pay some investors with the money he received from other investors — as long as new investors were opening accounts, Madoff could keep the fraud going. Of course, with a private scheme of this kind, collapse is inevitable once the number of investors stops growing fast enough to make the necessary payouts.
In an attempt to restore victims of Madoff's fraud after it collapsed, courts have allowed the bankruptcy case trustee, Irving Picard, to 'clawback' some of the fictitious profits from Madoff's customers who withdrew more from their accounts than they invested. Since Madoff investors with a positive return were paid with money Madoff received from other investors, rather than the returns from profitable investments, such investors had no right to keep those payments.
Note that a Social Security recipient is in an even worse position than a Madoff investor regarding a rightful claim to payment, in that they're also not paid from an account in their name that has earned a return over the years — they're paid by current workers — but their original investment can't even rightfully be returned, having long since been spent by government. Social Security doesn't have vague similarities to a Ponzi scheme — it's identical in every respect.
In the case of Social Security, the government is Bernie Madoff, paying current retirees from the payroll deduction it receives from workers, and spending any money that is left over on whatever it wants, via the purchase of government bonds (the so-called trust fund) which puts the surplus in the government's general fund to be spent.
Here's a table from the 'CBO - An Update To The Budget And Economic Outlook: 2014 to 2024', which shows that mandatory spending — which is dominated by Social Security, Medicare, and Medicaid — accounts for about 60% of federal budget outlays. Notice the budget deficit is projected to grow by over 40% (-$680B to -$960B) from 2013 to 2024. There's no reasonable way to address that problem without making changes to those programs, including Social Security --
http://www.cbo.gov/sites/default/files/45653-OutlookUpdate_2014_Aug.pdf
There are some lonely critics of Social Security out there, but what they write is largely met with anger from the public.
Here's Walter Williams, John M. Olin Distinguished Professor of Economics at George Mason University, talking about the 'uglier mail' he gets when he writes about problems with government programs for the elderly. He points out here what a terrible deal Social Security is for future recipients --
Here's Robert Samuelson pointing out that Social Security meets the definition of a welfare program, because it taxes one group to pay another. He wrote this column in reply to angry responses he received for describing Social Security as 'middle-class welfare' --
http://www.washingtonpost.com/wp-dyn/content/article/2011/03/06/AR2011030602926_pf.html
Why Social Security is welfare
By Robert J. Samuelson | Monday, March 7, 2011;
In a recent column on the senior citizen lobby, I noted that Social Security is often "middle-class welfare" that bleeds the country. This offended many readers. In an e-mail, one snarled: "Social Security is not adding one penny to our national debt, you idiot." Others were more dignified: "Let's refrain from insulting individuals who have worked all their lives and contributed to the system for 50-plus years by insinuating that [their] earned benefits are welfare." Some argued that Social Security, with a $2.6 trillion trust fund, doesn't affect our budgetary predicament.
Wrong. As a rule, I don't use one column to comment on another. But I'm making an exception here because the issue is so important. Recall that Social Security, Medicare and Medicaid, the main programs for the elderly, exceed 40 percent of federal spending. Exempting them from cuts - as polls indicate many Americans prefer - would ordain massive deficits, huge tax increases or draconian reductions in other programs. That's a disastrous formula for the future.
We don't call Social Security "welfare" because it's a pejorative term, and politicians don't want to offend. So their rhetoric classifies Social Security as something else when it isn't. Here is how I define a welfare program: First, it taxes one group to support another group, meaning it's pay-as-you-go and not a contributory scheme where people's own savings pay their later benefits. And second, Congress can constantly alter benefits, reflecting changing needs, economic conditions and politics. Social Security qualifies on both counts.
Let's start with its $2.6 trillion trust fund. Doesn't this prove that people's payroll taxes were saved to pay for future benefits, disconnecting them from our larger budget problems? Well, no. Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today's workers; in 2010, those taxes covered 91 percent of benefits. The trust fund's $2.6 trillion would provide only 3.5 years of benefits, which totaled about $700 billion in 2010.
The trust fund serves mainly to funnel taxes to recipients, and today's big surplus is an accident, as Charles Blahous shows in his book "Social Security: The Unfinished Work." In 1983, when the trust fund was nearly exhausted, a presidential commission proposed fixes but underestimated their effects. The large surplus "just developed. It wasn't planned," the commission's executive director said later. Even so, the surplus will disappear as the number of retirees rises.
Similarly, Congress has repeatedly altered benefits. From 1950 to 1972, it increased them nine times, including a doubling in the early 1950s. In 1972, it indexed benefits to inflation. People didn't complain when benefits rose, but possible cuts now trigger howls that a "contract" is being broken. Not so. In a 1960 decision ( Flemming v. Nestor ), the Supreme Court expressly rejected the argument that people have a contractual right to Social Security. It cited the 1935 Social Security Act: "The right to alter, amend, or repeal any provision of this Act is hereby reserved to Congress." Congress can change the program whenever it wants.
All this makes Social Security "welfare." Benefits shift; they're not strictly proportionate to wages but are skewed to favor low-wage earners - a value judgment reflecting who most deserves help; and they aren't paid from workers' own "contributions." But we ignored these realities and encouraged people to think they "earned" benefits and that Social Security is distinct from the larger budget. Politicians, pundits, think-tank experts and journalists engaged in this charade to spare Social Security's 54 million recipients the discomfort of understanding they're on welfare.
A relatively small elderly population sustained these fictions. Now, this is no longer possible. Contrary to the Obama administration's posture, Social Security does affect our larger budget problem. Annual benefits already exceed payroll taxes. The gap will grow. The trust fund holds Treasury bonds; when these are redeemed, the needed cash can be raised only by borrowing, taxing or cutting other programs. The connection between Social Security and the rest of the budget is brutally direct. The arcane accounting of the trust fund obscures what's happening. Just as important, how we treat Social Security will affect how we treat Medicare and, to a lesser extent, Medicaid.
It is because these programs involve middle-class welfare that cuts could occur without inflicting widespread hardship. All the elderly aren't poor. In 2008, a quarter of families headed by someone 65 or older had incomes exceeding $75,000. No doubt people would be outraged. Having been misled, they'd feel cheated. They paid their taxes, why can't they get all their promised benefits? But the alternative is much worse: imposing all the burdens on younger taxpayers and cuts in other government programs. Shared sacrifice is meaningless if it excludes older Americans.
Here's Walter Williams also making some of the same points — that Social Security is welfare, and that there is no promise of a benefit — but he also points out that Congress has changed the description of Social Security over the years, which has helped to create the false belief among Americans that individual taxpayers have a Social Security 'account', when that is certainly not the case --
http://econfaculty.gmu.edu/wew/articles/13/CongressionallyDupedAmericans.htm
http://www.creators.com/conservative/walter-williams/congressionally-duped-americans.html
http://townhall.com/columnists/walterewilliams/2013/11/06/congressionally-duped-americans-n1736128/page/full
Congressionally Duped Americans
Walter E. Williams | Nov 06, 2013
Last week's column, "Is There a Way Out?", generated quite a few responses, some a bit angry. Some people were offended by my reference to Social Security and Medicare as entitlements or handouts. They said that they worked for 45 years and paid into Social Security and Medicare and how dare I refer to the money they now receive as an entitlement. These people have been duped by Congress and shouldn't be held totally accountable for such a belief. Let's examine the plethora of congressional Social Security lies. I'll leave the Medicare lies for another column.
The Social Security pamphlet of 1936 read, "Beginning November 24, 1936, the United States Government will set up a Social Security account for you. ... The checks will come to you as a right" (http://tinyurl.com/maskyul). Therefore, Americans have been led to believe that Social Security is like a retirement account and money placed in it is their property. The fact of the matter belies that belief.
A year after the Social Security Act's passage, it was challenged in the U.S. Supreme Court, in Helvering v. Davis. The court held that Social Security is not an insurance program, saying, "The proceeds of both employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way." In a 1960 case, Flemming v. Nestor, the Supreme Court held, "To engraft upon the Social Security system a concept of 'accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever-changing conditions which it demands."
Decades after Americans had been duped into thinking that the money taken from them was theirs, the Social Security Administration belatedly — and very quietly — tried to clean up its history of deception. Its website explains, "Entitlement to Social Security benefits is not (a) contractual right." It adds: "There has been a temptation throughout the program's history for some people to suppose that their FICA payroll taxes entitle them to a benefit in a legal, contractual sense.
... Congress clearly had no such limitation in mind when crafting the law" (http://tinyurl.com/49p8fl2). The Social Security Administration failed to mention that it was the SSA itself, along with Congress, that created the lie that "the checks will come to you as a right."
Here's my question to those who protest that their Social Security checks are not an entitlement or handouts: Seeing as Congress has not "set up a Social Security account for you" containing your Social Security and Medicare "contributions," where does the money you receive come from? I promise you it's neither Santa Claus nor the tooth fairy. The only way Congress can send checks to Social Security and Medicare recipients is to take the earnings of a person currently in the workforce. The way Congress conceals its Ponzi scheme is to dupe Social Security and Medicare recipients into thinking that it's their money that is put away and invested. Therefore, Social Security recipients want their monthly check and are oblivious about who has to pay and the pending economic calamity that awaits future generations because of the federal government's $100 trillion-plus unfunded liability, of which Social Security and Medicare are the major parts.
Pointing to the congressional lies and future economic chaos is not the same as calling for a cessation of checks going out to recipients. Instead, it's a call for the recognition that we've made a mistake that needs to be corrected while there's time to avoid a calamity. It's also a call for us to recognize that we all share in the blame and hence the burden to make it right. Politicians have little interest in doing something about an economic calamity that will happen in 2030 or 2040; they only care about the next election. Older Americans, who own most of the political clout, must lead the fight to get Congress to do something about entitlement programs. Of course, the alternative is continued belief in the Social Security and Medicare myth and the heck with future generations.
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