Why Social Security is no Ponzi Scheme

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The Century Foundation's Greg Anrig responds to Rick Perry's accusation that Social Security is a Ponzi scheme. In this op-ed, he explains the two main reasons why Perry's claim is untrue.

The Century Foundation has released a new article by Vice President of Programs, Greg Anrig.
Anrig responds to Rick Perry's accusation that Social Security is a Ponzi scheme.He explains the two main reasons why Perry's claim is untrue. One, Social Security is unlike a Ponzi scheme for two main reasons. One is that participation in Social Security is mandatory for all workers, who along with their employers must contribute a total of 12.4 percent of their earnings to the program. In contrast, Ponzi schemes rely on voluntary payments from individuals who must be duped into making contributions. As with Bernard Madoff's scam, those ruses inevitably collapse when they are unable to continue attracting the ever increasing number of victims needed to sustain the operation.

The other major difference, Anrig writes, is that frauds like Signor Ponzi promised larger returns to investors than could possibly be sustained by its "customer" base, while the growth in Social Security benefits is manageable as long as it doesn't exceed future increases in the size of the economy and the workforce contributing taxes. The Trustees forecast that over a 75-year time horizon, the shortfall between taxes committed to the program and promised benefits amounts to just 0.8 percent of the size of the overall economy, or about 2.2 percent of income subject to payroll taxes. That relatively modest gap could be filled by a variety of adjustments to revenue and benefit levels, including the relatively popular proposal to raise or eliminate the current cap on income subject to Social Security taxes.

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Christy Hicks
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