Editor’s note: This is a lightly edited transcript of the accompanying video from professor Peter St. Onge.
Social Security is almost out of money. They broke it, we bought it. This comes from the Congressional Budget Office, who just released a new report saying Social Security has just nine years until it runs out of money.
Why? Because it’s a Ponzi scheme. It shouldn’t be, but it is. Basically, imagine you contributed to your pension company for 40 years, but they spent it all invading Ukraine. You turn 65, ask them for the money, and it’s gone.
So first, what does this mean. Social Security actually ran out of money a long time ago or, putting it more accurately, it never had any money. Because giving Congress a dollar for safekeeping is like giving a Kardashian a Botox gift card.
The dirty little secret of Social Security was they took the money and spent every last dime. Like that scene in “Indiana Jones,” they swapped out the money for IOUs and treasuries.
For decades, those IOUs built up since Social Security was collecting more than it was paying in benefits. But starting in 2010, it went negative and they were paying out more than they were collecting. They were losing IOUs.
So, when the CBO says it will run out of money, it means the IOUs will be gone. At which point the full annual Social Security deficit, $150 billion and rising fast, goes straight to deficit.
At that point, they either have to cut benefits, raise taxes, or eat it and let the deficit ride.
Cutting benefits could mean starting benefits later, maybe at age 70 or 75. Or means-testing benefits so if you work hard and save, you lose your Social Security. Or, the simplest, a 24% cut in benefits perhaps disguised by manipulating the inflation adjustment so seniors don’t realize they got robbed.
The other way is taxes. You could tax a wider range of earnings, you could push beyond the $170,000 earnings cap. Or, again the simplest, a 35% hike in Social Security taxes. That would take the payroll tax to 19.6% on top of income taxes.
Happily, there is a better way: Let people keep their Social Security accounts like a 401(k).
The South American country of Chile, for example, does not spend the national pension. Instead it makes you invest it, like a mandatory 401(k). You can put part in high-risk that pays better, or low-risk that pays less.
The result is Chile’s system is actually overfunded to the point they’re increasing pensions for poor Chileans. Why? Because in the 40 years their system existed, assets grew by over 8% per year
after inflation.
To his credit, then-President George W. Bush actually proposed this 20 years ago, and the left-wing media pilloried it as “privatization,” so it went nowhere.
So, what’s next?
Social Security is a Ponzi scheme headed for collapse. And it’s accelerating. My Heritage Foundation colleague Rachel Greszler estimates that unfunded liabilities are getting worse by more than $1 trillion per year.
The Social Security office in Alexandria, Virginia. (Peter Parisi/The Daily Signal)
That’s on top of our $2 trillion deficit. And don’t forget Medicare, which is even worse.
The good news is it doesn’t have to be this way: Other countries have shown how to manage an sustainable national pension.
As always, they served us up rusty nails and an old boot for dinner, and it’s up to voters to throw it away and make something else.
A new episode of the Peter St Onge podcast just dropped, rounding up all the week’s top stories. Check it out at Spotify, Apple, YouTube, or wherever you enjoy your podcasts.
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