Social Security

Return to Common Sense

February 12, 2017

Section: Culture – Social Security

The longer the federal government delays a transition to a personal account system the more likely the Social Security “Ponzi scheme” will drag the economy into bankruptcy.

Social Security. . . reflects some of our deepest values--the duties we owe to our parents, the duties we owe to each other when we’re differently situated in life, the duties we owe to our children and our grandchildren. Indeed, it reflects our determination to move forward across generations and across the income divides in our country, as one America. William J. Clinton.


Philosophy (Background, Issues, Objectives):

Original Social Security (FICA) Program was designed as a temporary targeted program:

·      Cash benefits plus Medicare coverage for SSDI recipients shot up from $53 billion in
1979 to $195 billion in 2010.

·         The participation in the program would be completely voluntary.

·         The participants would only have to pay 1% of the first $1,400 of their annual income.

·         The money the participants elected to put into the program would be deductible from taxable income.

o   Democrats eliminated the income tax deduction for Social Security (FICA) deduction.

·         All monies would be put into the independent “Trust Fund” rather than the General Operating Fund, and can only be used to fund the Social Security Retirement Program.

o   Democrat Lyndon Johnson put these funds into the General Fund.

·         The annuity payments to the retirees would never be taxed as income.

o   Democrats started taxing Social Security annuities, with VP Al Gore casting tie-breaker.

Social Security Administration (SSA) has a staff of over 65,000 employees and headquartered in Baltimore.

·         Retirement and Survivors Insurance (RSI) – 1935.

o   In 2013, pays benefits to 47 million retired persons.

o   In 2013, costs $668 billion.

·         Disability Insurance (DI) – 1954.

o   In 2013, pays benefits to 11 million disabled persons.

o   In 2013, costs $144 billion.

·         Supplemental Security Income (SSI) – 1972.

o    Originally designed as supplement for disabled low-income seniors and children.

o    Now covers virtually any low-income person with a long term ailment.

o    In 2013, pays benefits to 8 million disabled and low-income elderly persons.

o    In 2013, costs $57 billion.

·         International SSA programs.

Although billed as a “trust fund” monies collected were made available to the general fund.

·         The Social Security “Trust Fund's” real return ranges between negative and 1.23%. 

·         Over the 83 years from 1928 to 2010, the real return on U.S. Treasury bills was 3.75%.

·         The real return on the U.S. equity market was just under 10%.  

Social Security spent more in benefits than it takes in from payroll taxes beginning in 2010.

·         In 1935 Social Security was created to pay retired workers a continuing income after retirement.

·         Social Security is the only retirement plan that many American now have.

·         Social Security is a very poor investment, delivering negative rates of return on Social Security taxes.

·         The Social Security trust fund does not contain cash or assets; only special-issue government bonds.

o   Ponzi schemes are a type of illegal pyramid scheme named for Charles Ponzi, who duped thousands into investing in a postage stamp speculation scheme back in the 1920s.

o   The Ponzi scheme continues to work on the 'rob-Peter-to-pay-Paul' principle, as money from new investors is used to pay off earlier investors until the whole scheme collapses.

·         The only way to pay full benefits would be to raise taxes by about 50%.

·      In 2013, the Social Security program has accumulated huge unfunded obligations of $23 trillion.

Personal Ownership Accounts have been suggested, but have not gained sufficient traction for passage.

·         Conservatives proposed personal retirement accounts.

·         Democrats proposed reforms at Hyde Park Declaration for reform and personal retirement accounts.

·         Liberal obstructionists are in crisis denial and insist that “Social Security remains sound for decades.”

Americans are also choosing to go on lifetime disability, even though they are capable of holding a job.

·      The Social Security Administration (SSA) manages cash benefits for people with disabilities under two programs in this category

o   Disability Insurance (DI) for workers with disabilities including family members.

o   Supplemental Security Income (SSI) for individuals with disabilities who have limited income and resources.

·         In 2011, 10.7 million people were on disability.

·      4.6% of the working age population is on permanent disability, up from 0.3% when the Social Security Disability Insurance program (SSDI) was set up in 1956.

·      Cash benefits plus Medicare coverage for SSDI recipients shot up from $53 billion in
1979 to $195 billion in 2010.

·      Government administrators deciding who is eligible are turning SSDI into a permanent (literally lifetime) unemployment benefit for people uninterested in working or unable to find the job they want.

o   Administrators are promoting dependence as a lifetime alternative to employment.

o   Social Security Administration data document that 55% of the eligibility decisions are based on factors other than medical.

Over half of all Americans face a bleak retirement future because they have not saved enough.

·         Fewer than one in five are covered by a traditional defined benefit pension.

·         Many of these pension plans are under-funded.

·         Traditional pensions are being replaced by 401(k) type savings plans, but only half participate.

Pension Benefit Guaranty Corporation insures pension programs and is essentially broke.

·         The Pension Benefit Guaranty Corporation (PBGC) was created by the Employee Retirement Income Security Act (ERISA) of 1974 to cover voluntary private defined benefit pension plans, ensure pension benefits, and keep pension premiums low.

·         The PBSC was supposed to be, according to its charter, financially self-supporting, with its liabilities not being obligations of the U.S. government.

·         The PBGC has two programs, one insures single employer pensions and the other multiemployer, union-sponsored pensions.

·         Both programs are insolvent, with the multiemployer liabilities of $54 billion which are 27 times its assets of $2 billion.

·         Between 2010 and 2014, just eight states managed to cut the level of their unfunded liabilities.

Other countries are beginning to change their retirement programs to personal accounts.

·         Chile replaced tax-based, pay-as-you go government retirement system with an ownership based system of individually owned retirement accounts in 1981.

o   Workers could choose to stay in existing system, or could get out and invest in own account.

§  95% of Chilean workforce opted out of government system into personal retirement accounts.

§  Chilean workers pay in 10% of wages (they can send up to 20%) to one of several conservatively managed and regulated pension funds.

§  From the accumulated savings, workers get a life annuity or make programmed withdrawals (inheriting any funds left over).  

o   In 2013 a Dictuc study found that average annual rate of return was 8.7%, compound rate of return.

o   Chilean system has provided so much investment capital that Chile moved from being a poor country to being a solid middle-income country.

·         Some 30 nations have adopted a version of Cjhile’s private system.

·         Sweden adopted personal pension accounts in 2000 paid for by tax dollars.

o   Swedish reform introduced a “notional defined contribution” assigned to each participating worker tracking “investment earnings” and “account balances” as a tracking vehicle.

o   At retirement retirees get a pension based on the balance in their own notional account, converted into a monthly benefit based on expected remaining life span.

o   Use of “notional account” that positions for later simpler switch to fully funded accounts.

§  Current retirees and older workers will continue to receive retirement income based on the old program.

§  Workers born from 1938 to 1953 will receive benefits from both the old and new systems as the new system is gradually introduced.


Benefits of current retirees and those close to retirement must not be reduced.

·         Rate of return on a worker’s Social Security taxes must be improved.

Personal retirement accounts must guarantee an adequate minimum income.



Short Term, Isolate the social security financing funding and liabilities from the total budget.

·         Protect surplus from current spending.

·         Separate OMB forecast income and spending as a discrete entitlement.

·         Budget long term (30 year) to identify shortcomings long before they become problems.

·         Require program reauthorization every four years based on sustainability.

Improve the funding of traditional defined benefit pension plans.

·         Offer auto-enrollment in Federal Retirement Thrift Investment Board.

Examine social security reforms to salvage program such as:

·         Adjust the retirement age to reflect increases in life expectancy.

·         Adjust the annual cost of living adjustment based on Chained Consumer Price Index (C-CPI-U)

·         Provide incentives to work longer, offering those who work past their full benefit age receive a special annual tax deduction, regardless of income level.

·         Increase taxes by increasing earnings cap.

Tighten disability eligibility, limiting it to those medically unable to work at any job.

Long Term, Create Social Security Personal Retirement Accounts for individual workers owned and provide savings for retirement.

·         Protect current recipients (over 50-55) with program as currently exists.

o   Everyone is responsible for their own retirement funding, cushioned only by the Social Security safety net as originally designed.

·         Migrate current participants, over a five year transition period

o   Provide a lump sum equal to the amount already contributed grown at a modest rate of return.

o   Create a tax sufficient to provide for the needy in advanced age based on definitions of need and actuarial assumptions.

·         Expand private pension coverage by offering automatic enrollment and payroll deduction.

Privatize the Pension Benefit Guaranty Corporation (PBGC).



Pension Reform in Sweden: Lessons for American Policymakers” by Goran Norman and Daniel J. Mitchell dated June 29, 2000 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/bg1381.cfm .

“Six Important Rules for Real Social Security Reform” by David C. John dated June 2, 2003 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/EM884.cfm .

A Progressive Proposal for Social Security Personal Accounts” by Peter Ferrara dated June 13, 2003 published by Institute for Policy Innovation at http://www.ipi.org/ .

The 6.2 Percent Solution: A Plan for Reforming Social Security” by Michael Tanner dated February 17, 2004 published by The Cato Institute at http://www.cato.org/pubs/ssps/ssp-32es.html .

It’s High Time for Lifetime Savings Accounts” by Terry Mitchell dated March 23, 2005 published by American Daily at http://www.americandaily.com/article/7208 .

The 2005 Index of Dependency” by William W. Beach dated June 13, 2005 published by The Heritage Foundation at http://www.heritage.org/Research/Budget/cda05-05.cfm .

Extinct, in Under Five Years” by Michael G. Franc dated August 2, 2005 published by National Review Online at http://www.nationalreview.com/comment/franc200508020825.asp .

Entitlement-Reform Realities” by Jagadeesh Gokhale dated June 26, 2006 published by National Review Online at http://article.nationalreview.com/?q=NjIxZDM0ZDhlMGRiMGIzNWNkMGI2NWFjNDVkMDU4YmQ= .

Can Social Security Reform Be Saved?” by David Hogberg dated June 26, 2006 published by The American Spectator on http://www.americanprowler.com/dsp_article.asp?art_id=10009 .

Increasing Retirement Security Through Automatic IRAs” by David C. John and J. Mark Iwry dated June 29, 2006 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/tst062906a.cfm .

Deficits, Social Security, and Other Entitlements” by Stephen M. Lilienthal dated July 27, 2006 published by American Daily at http://americandaily.com/article/14783 .

A Fix for Social Security?” by Sebastian Mallaby dated November 27, 2006 published by Washington Post at http://www.washingtonpost.com/wp-dyn/content/article/2006/11/26/AR2006112600929.html .

Personal Accounts, Not Tax Increases” by Peter Ferrara dated March 2007 published by Institute for Policy Innovation at http://www.ipi.org/ipi_issues/detail/personal-accounts-not-tax-increases .

2007 Social Security Trustees Report Shows the Urgency of Reform” by David C. John dated April 24, 2007 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/wm1429.cfm .

President Roosevelt’s ‘New Deal” & Social Security” by Gordon Bishop dated August 27, 2007 published by American daily at http://www.realclearpolitics.com/articles/2007/08/declinism.html .

Congress Should Add Auto-Enrollment to the Thrift Savings Plan, But Resist Interfering in Its Investment Choices” by David C. John dated September 24, 2007 published by The Heritage Foundation at http://www.heritage.org/Research/SocialSecurity/wm1637.cfm .

Social Security, Ponzi Schemes and Moral Hazards” by Terry Easton dated September 28, 2007 published by Human Events Online at http://www.humanevents.com/article.php?id=22615 .

Life is not a Defined Benefit” by Star Parker dated November 2, 2007 published by Human Events Online at http://www.humanevents.com/article.php?id=23216 .

Five Myths and a Slur” by Ruth Marcus, dated November 28, 2007 published by Washington Post at http://www.washingtonpost.com/wp-dyn/content/article/2007/11/27/AR2007112702031_pf.html .

Rethinking Social Insurance” by Stuart M. Butler and Maya MacGuineas dated February 19, 2008 published by The Heritage Foundation at http://www.heritage.org/Research/Budget/wp021908.cfm .

Look to Sweden?” by Henry Olsen dated February 26, 2008 published by The American at http://www.american.com/archive/2008/february-02-08/look-to-sweden .

The Swedish Solution” by James C. Capretta dated March 17, 2008 published by The Weekly Standard at http://www.weeklystandard.com/Content/Public/Articles/000/000/014/853mjsly.asp .

“A working model” by Richard W. Rahn dated May 15, 2008 published by Washington Times at http://www.washingtontimes.com/article/20080515/COMMENTARY/758878152/1012/COMMENTARY .

Social Insecurity?” by Andrew G. Biggs dated November 21, 2008 published by American Enterprise Institute at http://www.aei.org/publications/pubID.28971,filter.all/pub_detail.asp .

Does Social Security Actually Spread Risk Across Generations?” by Andrew G. Biggs dated December 9, 2008 published by American Enterprise Institute at http://www.aei.org/publications/filter.all,pubID.29040/pub_detail.asp .

How to Reform Entitlement Spending” by Brian M. Riedl and Alison Acosta Fraser dated January 13, 2009 published by The Heritage Foundation at http://www.heritage.org/Research/Budget/sr43.cfm .

Will Your Social Insurance Pay Off?” by Andrew G. Biggs dated January 14, 2009 published by American Enterprise Institute at http://www.aei.org/include/pub_print.asp?pubID=29198&url=http://www.aei.org/publications/pubID.29198,filter.all/pub_detail.asp .

Social Security: National Ponzi Scheme” by Walter E. Williams dated February 2, 2009 published by Investor’s Business Daily at http://www.ibdeditorials.com/IBDArticles.aspx?id=318470763456742 .

Meltdown Was Perfect Stress Test For Market-Based Pension Reform” by William G. Shipman dated May 8, 2009 published by Investor’s Business Daily at http://www.ibdeditorials.com/IBDArticles.aspx?id=326678998631300 .

The Chilean Model” dated December 27, 2010 published by Investor’s Business Daily at http://www.investors.com/NewsAndAnalysis/Article/557939/201012271907/The-Chilean-Model.htm .

The Politics of Social Security Reform” by Randy Fardal dated March 10, 2011 published by American Thinker at http://www.americanthinker.com/2011/03/the_politics_of_social_securit.html .

Chile’s Private Social Security System Turns 30” by Monica Showalter dated April 29, 2011 published by Investor’s Business Daily at http://www.investors.com/NewsAndAnalysis/Article/570629/201104291742/Chiles-Private-Accounts-Turn-30.htm .

Saving the American Dream” by Stuart M. Butler, Alison Acosta Fraser, and William W. Beach dated May 10, 2011 published by The Heritage Foundation at http://www.heritage.org/Research/Reports/2011/05/Saving-the-American-Dream-The-Heritage-Plan-to-Fix-the-Debt-Cut-Spending-and-Restore-Prosperity .

Boomer Barons?” by Jeffrey Folks dated May 21, 2011 published by American Thinker at http://www.americanthinker.com/2011/05/boomer_barons.html .

Containing the Disability Explosion” by Robert Verbruggen dated August 31, 2011 published by National Review Online at http://www.nationalreview.com/articles/275809/containing-disability-explosion-robert-verbruggen .

McCotter Trailblazes Social Security Prosperity” by Peter Ferrara dated October 12, 2011 published by The American Spectator at http://spectator.org/archives/2011/10/12/mccotter-trailblazes-social-se .

The New Welfare Swindle” by Christopher Orlet dated November 17, 2011 published by The American Spectator at http://spectator.org/archives/2011/11/17/the-new-welfare-swindle .

Throwing FDR Under the Bus?” by Steve Conover dated December 17, 2011 published by The American Magazine at http://www.american.com/archive/2011/december/throwing-fdr-under-the-bus .

Food Stamps Just Part of Dependency Boom” by Betsy McCaughey dated January 20, 2012 published by News Max at http://www.newsmax.com/McCaughey/Newt-Gingrich-food-stamps/2012/01/20/id/424908 .

“The Fraud of Our Entitlement System” by Herbert London dated February 2, 2012 published by The American Spectator at http://spectator.org/archives/2012/02/02/the-fraud-in-our-entitlement-s .

Still a Better Deal: Private Investment vs. Social Security” by Michael Tanner dated February 13, 2012 published by Cato Institute at http://www.cato.org/pubs/pas/PA692.pdf .

Social Security Administration Propose Spending Cuts” by Chris Edwards and Tad DeHaven dated August 2013 published by CATO Institute at http://www.downsizinggovernment.org/ssa/spending-cuts .

Reforming Social Security Retirement” by Chris Edwards and Michael Tanner dated August 1, 2013 published by CATO Institute at https://www.downsizinggovernment.org/ssa/social-security-retirement .

 The Rising Cost of Social Security Disability Insurance” by Tad DeHaven dated August 1, 2013 published by CATO Institute at https://www.downsizinggovernment.org/ssa/social-security-disability-insurance .

 Supplemental Security Income: A Costly and Troubled Welfare Program” by Tad DeHaven dated August 1, 2013 published by CATO Institute at https://www.downsizinggovernment.org/ssa/supplemental-security-income .

Yes, Chile’s Private Pension Model Works, Big Time” dated September 27, 2013 published by Investor’s Business Daily at http://news.investors.com/ibd-editorials/092613-672776-score-another-one-for-the-chilean-model-of-private-pensions.htm .

The Public Pension Problem: It’s Much Worse Than It Appears” by Steven Malanga dated July 22, 2016 published by Manhattan Institute at http://www.manhattan-institute.org/html/public-pension-problem-its-much-worse-it-appears-9095.html .

Who Will Pay for the Pension Benefit Guaranty Corporation’s Huge Losses?” by Alex Pollock dated July 26, 2016 published by Real Clear Markets at http://www.realclearmarkets.com/articles/2016/07/26/who_will_pay_for_the_pension_benefit_guaranty_corporations_huge_losses_102279.html .