MATTHEWS: Republican chairman is thinking Ponzi scheme

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September 1, 2010

BY DAVE MATTHEWS Local Guest Columnist The News and Tribune Wed Sep 01, 2010, 02:43 AM EDT

> SOUTHERN INDIANA — I read with great interest the recent Opinions column by Kelly Curran on Social Security. I could not agree with her more.

We are way past the time for an open and honest discussion about the viability of the program. I also agree with her — with apologies to Jack Nicholson's character — we can handle the truth.

I recently researched the Heritage Foundation's website at www.heritage.org, regarding the Social Security Trust Fund. I encourage everyone interested in the topic to do the same. In their own words, “There is no cash in the Social Security trust fund, and there never has been any.” I was shocked.

You see, the system set up by our legislators collects not only your income taxes, but also Social Security taxes and Medicare taxes, usually from your employer long before you get a chance to see it. By the way, the only taxes that you get to deduct paying more taxes on are income taxes…but that's a topic for another time. Originally, Social security taxes were designed as your payment into a system that you would collect from when you were older and past your income-producing days…kind of a savings account.

Now, the Heritage Foundation explains that what the government does with respect to Social Security is collect your “fair share” and then distribute to its recipients. What remains after benefits are paid is then “otherwise spent by the government.” In the 2003 example the foundation quotes, “At the end of 2002, the Social Security trust fund had a balance of $1.22 trillion. During 2003, the Treasury received $544 billion in Social Security taxes and paid out $406 billion in Social Security benefits. Therefore, the trust fund received $138 billion, resulting in a trust fund balance of $1.36 trillion at the end of 2003.”

Here's the catch. That $138 billion that the trust fund “received” was paid to it in special-issue Treasury bonds. In other words, our legislators wrote a $138 billion IOU to the trust fund to accompany the previous $1.22 trillion worth of IOUs and spent the actual $138 billion collected from us “just like any other tax revenue — to finance anything from aircraft carriers to education research.”

The system of collecting from lots of taxpayers with the promise that they would receive their investment returned later in life when they really needed it sounds like a good idea. And, if we really were investing the money that we had put into Social Security for these past 75 years for future payments and generations, it might have worked. But absolutely NO money has been kept for the future. Any excess has been spent by every legislator for the past 75 years. And soon, there won't be enough of us paying in to pay for the benefits of us who will be taking out.

Wikipedia defines a Ponzi scheme as a “fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned.” Hmmmmm. That sounds familiar.

Now, whether you like Baron Hill or Todd Young, YOU must decide whether what our legislators have been doing with our Social Security system is a Ponzi scheme or not. Frankly, if I were guilty of spending your investment for your future and for the needs of others instead of actually investing it, I would claim that my opponent was “trivializing” the problem too.

Baron did admit however, that “there are some unfunded liabilities.” And like all good politicians, he proclaims that “Social Security is a sacred trust between the federal government and senior citizens.” Unfortunately, it appears that what has been done to the system has been a fraudulent and irresponsible abuse of the trust of the “investors” (you and me) with a promise to pay us back later when we need it. Kind of sounds like a Ponzi scheme to me.

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