In February, Wall Street Journal editorial board member Stephen Moore compared Social Security to "a big Ponzi scheme." Today, the AP's Tom Raum agreed, writing that the current Social Security system is "pretty much" a "giant federal Ponzi scheme":
As Congress agonizes over health care, an even more daunting and dangerous challenge is bearing down: how to shore up Social Security to keep it from burying the nation ever deeper in debt.
What to do about mushrooming government payments as millions of baby boomers retire? How about a giant federal Ponzi scheme? That might work for a while.
But wait. That's pretty much the current system. Social Security takes contributions from today's workers and uses them to pay the old-age benefits that were promised to retirees. But there are serious concerns how long that can last.
Although calling Social Security a Ponzi scheme - think of the huge frauds that sent billionaires Bernard Madoff and R. Allen Stanford to prison - may be a bit of a stretch, there is one clear similarity.
As in a Ponzi scheme, the concept works fine at first. So long as there are more new "investors" pumping money into the system to pay off the earlier ones, everyone is happy. But at some point not enough new money is coming in and the scheme collapses.
Raum then falsely asserted that according to the Social Security trustees, "Social Security will be completely depleted in 2037":
With baby boomers working, Social Security - the biggest social spending program - has produced a surplus that has helped finance the rest of the government for the past quarter century. But that will change within a decade.
Trustees of the system recently said that in 2016 - a year earlier than previously forecast - money paid out in benefits will start exceeding the tax dollars flowing in. With no changes, Social Security will be completely depleted in 2037, the trustees said.
What the trustees actually said in their May 2009 report was that the Social Security trust fund -- not Social Security itself -- will be completely depleted in 2037. And after that happens, according to the trustees, revenue from payroll taxes will be sufficient to pay about three-quarters of scheduled Social Security benefits through 2083:
Under the intermediate assumptions, the OASDI cost rate is projected to increase rapidly and first exceed the income rate in 2016, producing cash-flow deficits thereafter. Redemption of trust fund assets will allow continuation of full benefit payments on a timely basis until 2037, when the trust funds are projected to become exhausted. This redemption process will require a flow of cash from the General Fund of the Treasury. Pressures on the Federal Budget will thus emerge well before 2037. Even if a trust fund's assets are exhausted, however, tax income will continue to flow into the fund. Present tax rates are projected to be sufficient to pay 76 percent of scheduled benefits after trust fund exhaustion in 2037 and 74 percent of scheduled benefits in 2083.
In contrast to Raum, AP economics writer Martin Crutsinger made this clear in a May 13 article:
The trustees report projected that Social Security's annual surpluses would "fall sharply this year," then remain at a reduced level in 2010 and be lower in the following years than last year's projections. The report said that the Social Security annual surplus would be eliminated entirely in 2016, reflecting increased demands from the wave of 78 million baby boomers retiring.
That means Social Security will have to turn to its trust fund to make up the difference between Social Security taxes and the benefits being paid out beginning in 2016. The trustees projected the trust fund would be depleted in 2037, four years earlier than the 2041 date in last year's report.
At that point, the annual Social Security taxes collected would be enough to pay for three-fourths of current benefits through 2083. To tap the trust fund, the government would have to increase borrowing or raise taxes because Social Security bonds exist only as bookkeeping entries.