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Monday, August 5, 2013

Social Security is Not a Savings, Insurance, or Pension Program

Is Social Security a savings program? No, because the money which is collected goes directly from the people being taxed to the people getting  benefits. For many years, Social Security collected more money than it spent, and some of the money was used to buy special US bonds. The program now has about $2.5 trillion worth of those bonds. They are stored in a filing cabinet in Martinsburg, WV.
Until relatively recently, these bonds only existed as entries in a record book. However, now when a new bond is issued, it is printed on a laser printer located at the Bureau of the Public Debt's Martinsburg, WV office. The bond is then carried across the room and put in a fireproof filing cabinet. That filing cabinet is the Social Security trust fund.
At some point in the future, Social Security will need to spend more than it receives in payroll taxes. At that point, it will begin to cash in the bonds in the trust fund. Where will the money come from?
According to the OMB, there are only four sources that money can be drawn from. Congress could repay the money by raising other taxes. It could also authorize the Treasury to just borrow the needed funds. Another alternative would be for Congress to reduce other federal programs and to use the money that was to have been spent for them to redeem Social Security bonds. Finally, Congress could reduce Social Security benefits.

 Is Social Security an insurance program? No, because in an insurance program, the benefit is tied to how much you pay in. With Social Security, there is little connection between how much you pay in and what you get. If you work your whole life, you get nothing.

Is Social Security a pension program? No, because a pension's benefits are tied to how many years you work and what your final salary was. With Social Security, it is tied to your average annual earnings. The more money you earned, the bigger the benefit. 

So what is Social Security then? It is a program which transfers money from one group to another, and then promises to pay back the first group with money taken from a second group, and to pay the second group with many taken from a third group, and so on.

Social Security IS a Ponzi Scheme.


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