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8/13/2008
Aren't Ponzi schemes illegal?
Rep. Lasee wrote this commentary six years ago, and it is still as true today as it was then.
Social Security has long been known as the “third rail” of politics – touch it and die, politically speaking.
Those who understand the program know it’s far past time to “touch” Social Security, though. What’s needed now is a complete makeover.
In a new report on Social Security’s problems, The Cato Institute’s June O’Neill writes “…the problem is not that we may raid the trust fund next year or that we have failed to provide a ‘lock box’… Social Security is essentially funded on a pay-as-you-go basis, meaning that the benefits of current retirees are paid by the taxes of current workers.”
That will come as a surprise to far too many Americans. For all the talk about “keeping Social Security solvent” and the “lock box,” Social Security is essentially an empty bank. Today’s benefits are funded by today’s taxes. Unless major reforms take place, tomorrow’s taxes will fall far short of funding tomorrow’s benefits.
Here’s an example: I have two daughters, and I want to save for their college educations. So I decide to put $100 a month for each of them into a shoebox.
But I don’t actually put $100 in there: instead, I spend the money, and put an IOU into the shoebox.
Am I really saving for my daughters? When the time comes, their tuition will have to come out of whatever I’m making at that time – no Ivy League schools for them.
That’s essentially the case with Social Security. The “trust fund” we keep hearing about is empty. The taxes you pay aren’t saved for you: they’re paying for today’s retirees. When you retire, if the program still exists, someone else’s taxes will pay for you.
It’s not that there isn’t enough money going into the program. Social Security has had surpluses nearly every year since its inception in 1937. Unfortunately, those surpluses haven’t been saved – they’ve been spent, underwriting more government programs.
That’s not going to be possible much longer. According to O’Neill, “…the worker-to-beneficiary ratio will fall from its current level of 3.3 covered workers per retiree to about 2 workers per retiree in 2030.” The number of retirees in our country is going to grow rapidly over the next few decades, with a relatively smaller number of workers paying for their benefits. Goodbye surpluses.
At that point, we’ll have three choices: raise taxes (by 35%), cut benefits, or cut other spending to pay for the program.
These are the facts, but they’re not widely known. Another little known fact: it didn’t have to be this way.
The federal government could do a lot to make Social Security more efficient: provide more incentive for private investment; stop spending the surpluses; or best of all, let individuals invest at least a portion of their own Social Security taxes.
None of those things have happened, though, and any news story about Social Security is likely to contain some warning about how difficult reform will be. Why is that, when the program is so obviously in trouble?
Because people aren’t getting honest information about Social Security. Some politicians and interest groups find it useful to scare large segments of the public, telling them that real reform will threaten their benefits. That means lots of people (read: voters) will oppose it.
That alone explains why we haven’t had Social Security reform. It’s too hard.
If Wisconsin ’s budget problems have proven anything, it is this: politicians are like water – they follow the path of least resistance. We don’t have Social Security reform for the same reason fiscal responsibility in Wisconsin is so elusive: every real attempt at reforming our state’s finances has met with opposition, and our politicians haven’t had the will to stand up to it.
O’Neill’s closing paragraph could be written about many subjects, Social Security and Wisconsin ’s finances included: “Whatever the final shape of reform, it is time for Congress to stop playing verbal games over what are essentially accounting gimmicks and get down to serious work.” I agree.
Frank Lasee is a Republican and represents the 2nd Assembly District.
COMMENTS
Yes, Ponzi schemes are illegal-- unless the government organizes them.
Likewise, gambling is illegal-- unless the government runs the tables and takes a healthy cut.
And what separates the bootlegger from the distillery? The tax stamp on the bottles, signifying that Uncle Sam is getting his taste of the action.
Drinking, gambling, and pyramid rackets are all immoral, intolerable, and illegal-- well, unless the government is running the game.
They know what's best for us...
-jjg
DailyScoff.com
J. Gravelle (Wed Aug 13 07:59:05 2008)
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