Does Social Security fit the description of a Pyramid Scheme?

Question

Everyone at the bottom still working puts their money in and the people who started earlier at the top pull out after a certain period of time????
What happends to a pyramid scheme when the people pulling out outnumber the ones putting in?

If all this is true, then why do business with similiar strutures seem to have such a bad rep???

Answer 1

You're exactly right, it is a classic Ponzi, or pyramid, scheme. Each cash payment generates another "i.o.u." within the budget... When the number of people at the top of the pyramid becomes too great for those at the bottom to support them, the system will collapse...

Answer 2

That's why benefits and funding of such a plan have to be carefully managed. It was never meant to replace private retirement funds, just to give a bottom net to allow all seniors some level of subsistence rather than the 'poor' houses of the early 20th century and before.
It only becomes a pyramid scheme when benefits get out of control and/or funding is insufficient and/or the program becomes voluntary.

Peace

Answer 3

In a Ponzi Scheme, the person running it is stealing - He uses some of the money coming in from new investors to pay big returns to the old ones - for awhile - and then he runs off with the rest of he money.

Until 1983, Social Security was a pay as you go system - a contract between generations, where the younger generation paid for the retirement of the previous generation. -Almost all of what went into the Social Security trust fund immediately went out to beneficiaries of the system - but nothing was being stolen.

But in 1983, Congress recognized that the retirement of the baby boom generation would place an unfair burden on the next (smaller) generation of workers unless changes were made to the system. As a result of the massive 1983 reform package, the retirement age was scheduled to increase to 67 to account for longer lifespans. In addition, social security taxes on wages were increased by about 1/3, and the trust fund built up a surplus of over 2 trillions dollars - and as a result the baby boomers paid for their parents' retirement while providing for their own as well. By one measure, the 1983 reform package has been wildly successful, as the trust fund is now predicted to last at least until 2042, when the oldest baby boomers will be 96 years old.

Early in his first term, President Regan promised to balance the Federal Budget by 1983. The problem of course is that we have massive budget deficits under the administrations of Reagan and Bush I and II. Because the baby boom generation has not yet started to retire, this year congress will be able to borrow and will borrow over 150 billion dollars in new surplus money from the social security trust fund, every penny of which was paid for by FICA taxes on the wages of working people - and congress has no plan in place to pay it back when it is needed to fund the retirement of the baby boom generation. (All prior surpluses have already been borrowed and spent.)

When President Bush complained (in his 2005 State of the Union address) that in 2017, the trust fund will be paying out more than it takes in and when he calls the trust fund a "worthless bunch of IOU's," he is in effect asking for "debt relief." He wants to find a way to avoid repaying the debt to the trust fund so that he can preserve his 15% dividend and capital gains tax rates and his other tax breaks for the rich.

He was in effect saying - Look we have been running a Ponzi Scheme since 1983 - and we would like to have permission not to pay the money back. When President Bush brags that his budget deficits have been getting smaller, he ignores the borrowing from the social security trust fund as if it never has to be paid back.

The lowest paid worker pays social security taxes on his wages at the same percentage rate as a person making $90,000 per year. The justification for this is that social security taxes are supposed to be like retirement savings - But President Bush doesn't care.

Thus we are faced with a profound moral issue: Is it right to borrow and spend somebody's retirement moeny and not pay it back. If the CEOs of a big corporation (like Enron or World Com) had taken all the money from their employees' pension plans and replaced it with a bunch of worthless stock options or worthless IOUs, they would be headed to jail. In the alternative is it right to preserve the tax cuts for the rich and pass the entire debt to the trust fund on to the next generation.
I
I would like to treat congress - (and the republicans in particular) something like the way we treat Enron executives - I would start with a rollback of all the Bush Tax cuts, and then roll back every tax cut for the rich back to President Reagan, until the government was solvent and could pay its debts (including its debts to the social security trust fund) without being an unfair burden to the next generation -

Some people will no doubt feel differently, but the issue should be debated and the public should be informed what has been going on as soon as possible.

In order to take the high moral ground on this issue, Democrats must recognize that they had a hand in creating the big deficits of the past 23 years. Both parties have been buying our votes with borrowed money stolen from the trust fund for far too long. But in any event, the press has an obligation to explain to the public that the problem is not with social security but with rest of the government. Neither the Democrats nor the Press have done their job.

Answer 4

This is scary true, as most western countries are discovering. Unfortunatly all social welfare programs are financed the same way, with most more upside down than the SSA.