In last night’s debate, Republican presidential frontrunner Rick Perry called Social Security a “Ponzi scheme.” Fox News’ Brit Hume says Social Security can “in many ways,” be “likened to a Ponzi scheme.” CNN’s Erick Erickson believes Social Security “is, for all intents and purposes, a Ponzi scheme.” Fox News’ Eric Bolling agrees with Perry that Social Security “is a Ponzi scheme.” Rush Limbaugh told listeners, “I want to applaud” Perry’s claim that Social Security is a Ponzi scheme.
I hate to spoil the Republicans’ fun here, but Social Security is not a Ponzi scheme.
Over the next 75 years, Social Security’s shortfall is equal to about 0.7 percent of GDP (pdf). If we increase its revenues by that amount — which could be accomplished by lifting the cap on payroll taxes — or reduce its benefits by that amount or do some combination of the two, Social Security is back in the black. Here are 30 policy tweaks that could get us there.
Why does Social Security show a shortfall? As Stephen C. Goss, the system’s chief actuary, has written, Social Security projects an imbalance “because birth rates dropped from three to two children per woman.” That means there are relatively fewer young people paying for the old people. “Importantly,” Goss continues, “this shortfall is basically stable after 2035.” In other words, we only have to fix Social Security once. After we reform it to take account of modern demographics, the system is set for the foreseeable future.
And that’s…it. That’s what’s needed to fix Social Security. All this talk about it being a “monstrous lie” or “a Ponzi scheme” or “broken” is meant to create a crisis to clear the way for radical changes in Social Security. But if folks want to make radical changes to Social Security, they should just make the argument for their proposed fixes. And good luck to them.
Nick Baumann recently made a Venn diagram noting the differences between the Social Security program and a Ponzi scheme. Someone might want to send Rick Perry a copy.