I just today heard that the richest man in the world commented that social security is a Ponzi Scheme, which is a term most people have probably heard at one time or another but it’s hard to define except it has negative connotations. Let’s take a moment to break this down.

Ponzi scheme: by definition, a Ponzi scheme is an investment fraud. The original person or group who starts the process sells shares promising an un-guaranteed return and then they pocket the money. So the earliest investors profit while the later investors fund the profit. Bernie Madoff was famous for this profiteering scheme and was jailed after defrauding $65 billion from investors over decades in 2009. The original Ponzi, Charles, defrauded investors in the 1920’s, and the activity was named after him.

Social Security: Created in 1935 by the Franklin Roosevelt administration, this program came out of the devastation of the Great Depression as huge numbers of seniors in the United States lost their financial security and were living in complete destitution. Basically the structure created a payroll tax that funds current monthly allotments for retired seniors who qualify for the program. During the Eisenhower administration, the recipients were expanded to include disabled workers. Eventually, people who are unable to hold a job because of medical conditions were added as well. The funding problem for social security is related to multiple factors: increase in lifespan, shifts in population (a smaller worker generation paying for larger retired generation), and shifts in payout mix (the folks who live the longest have higher income status and therefore a higher social security check monthly). These have been addressed somewhat by increasing the retirement age, and other tax adjustments, but the deficit for the future is certainly problematic.

All of this information is basically public knowledge. History.com has a nice summary article. There is a website at the social security administration that details the history: https://www.ssa.gov/history/index.html .

Does the original statement make any sense? NO. Social security is not a fraudulent investment scheme. It is a government program funded by taxes to keep retired workers and disabled Americans from plummeting into destitution. In my opinion, it is also a very successful public health measure to ensure health stability in the most vulnerable segment of the American population. For up to 40% of retired Americans, this is their only source of income (*). That means that roughly half of all retired folks live with under $1800 monthly. Just to put that in context: the average apartment in Washington state averages between $1700-$2000 per month. This is certainly not an excessive entitlement.

So why would anyone even call it a Ponzi scheme? Because they will never need social security and their intent it to undermine an essential American institution that keeps millions of people from plunging into economic ruin when they can no longer work. They want to characterize this program as a bad investment, as opposed to a simple tax for the good of the public, and for the very people who worked hard in the past to make our country what it is today.

Does it need reform? Yes, and I have a simple solution. The current cap on social security payroll tax is 6.2% only on the first $174,900 of yearly income. Just eliminate the cap, so that all workers pay the same 6.2% on ALL their income. Only the top 10% of earners would even notice this tax, and it would generate a huge amount of money to refill the social security trust fund, managed by the treasury department and used to pay out social security checks (#).

Most of my patients live on social security alone, and have no other means to support themselves. Their lives would be utterly devastated by removing even small parts of this essential program. My final ask is that voters and politicians base their opinions on real consequences, and not just attention grabbing one liners from obscenely rich people who have no idea what they are talking about.

* https://www.nirsonline.org/2020/01/new-report-40-of-older-americans-rely-solely-on-social-security-for-retirement-income/#:~:text=Only%20a%20small%20percentage%20of%20older%20Americans%2C%206.8%20percent%2C%20receive,from%20Social%20Security%20in%20retirement.

# https://www.pgpf.org/article/should-we-eliminate-the-social-security-tax-cap-here-are-the-pros-and-cons/