Social Security is a Ponzi scheme

Definitions Social Security: Any government system that provides monetary assistance to people with an inadequate or no income (restricted to pensions for this debate). Ponzi Scheme: A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors. Preface This debate is not talking about Social Security in general or its possible ramifications to future society, legality, or effectiveness. This debate is solely talking about whether the Social Security system found within the United States operates like Ponzi Scheme. For me to win this debate, I must prove that Social Security is a Ponzi Scheme or that Social Security is very similar to that of a Ponzi Scheme. For my opponent to win, he must prove that Social Security does not have any connection with that of a Ponzi Scheme. What is a Ponzi Scheme? A Ponzi scheme is by definition, a fraudulent investment operation in which money is transferred from one party to another party by a third party outsider while no profit is made. The money received from the new investor(s) is used to cover the supposed gains on investments from the previous investors. A Ponzi scheme will eventually fail because the supposed earnings will be less than the money promised to the investors. A key point of a Ponzi scheme is that there is no profit gained during the transaction, simply distribution money from a new investor to an existing one. To prove that a specific entity is a Ponzi Scheme, it must fulfill the following criteria: 1. Money is transferred from one party to another party via a third party. 2. The money received from the new investors is given to the old investors. 3. No profit or very little profit is directly made of off the transaction. 4. The scam eventually fails because of a lack new investors supporting the old investors. How does Social Security Work? The premise behind Social Security is relatively simple, but increasingly complex if delved into. “The basic idea of social security is a simple one: During working years employees, their employers, and self-employed people pay social security contributions which are pooled into special trust funds. When earnings stop or are reduced because the worker retires, becomes disabled, or dies, monthly cash benefits are paid to replace part of the earnings the family has lost,” states the United States Department of Health and Human Services social security booklet titled Your Social Security. (1) For this debate, we will solely focus on the OASI aspect of Social Security. Social Security is a program that is funded by mandatory payroll taxes of workers. C1: Money is transferred from one party to another party via a third party The taxes that the government receives are not in fact used to supplement funds into your own pension accounts. The money that a person invests into the system is paid out to various other retirees. The money is precisely not invested into anything, but instead used to pay other the current retirees with the money of the current retirees (2). Michael D. Tanner, Senior Fellow at the Cato Institute has this to say about Social Security(2)(3): "Social Security, on the other hand, forces people to invest in it through a mandatory payroll tax. A small portion of that money is used to buy special-issue Treasury bonds that the government will eventually have to repay, but the vast majority of the money you pay in Social Security taxes is not invested in anything. Instead, the money you pay into the system is used to pay benefits to those “early investors” who are retired today. When you retire, you will have to rely on the next generation of workers behind you to pay the taxes that will finance your benefits. "As with Ponzi’s scheme, this turns out to be a very good deal for those who got in early. The very first Social Security recipient, Ida Mae Fuller of Vermont, paid just $44 in Social Security taxes, but the long-lived Mrs. Fuller collected $20,993 in benefits. " From this information, we can clearly see that Social Security operates by taxing the younger generation to pay for expenses of the older generation. This operates exactly the same as a Ponzi Scheme: the transfer of money from one party (the new investors) to another (the old investors). C2: Money received from the new investors is given to the old investors I sufficiently proved this point already in C1, but a quick reiteration ought to be in order. Similarly to a Ponzi Scheme, the new investors in a Social Security system must pay for the benefits of the older generation. This process until the scam falls apart because of a lack of new investors entering the market. C3: No profit or very little profit is made of off the transaction An important aspect of a Ponzi Scheme is that very little or no money is made during the entire transaction other than the simple redistribution of money (4). The same holds true for Social Security. According to the Government Social Security Website (5): “The U. S. Treasury does not set aside financial assets to cover its liabilities associated with the OASI and DI Trust Funds. The cash received from the OASI and DI Trust Funds for investment in these securities is used by the U. S. Treasury for general Government purposes. Treasury special securities provide the OASI and DI Trust Funds with authority to draw upon the U. S. Treasury to make future benefit payments or other expenditures. When the OASI and DI Trust Funds require redemption of these securities to make expenditures, the Government finances those expenditures out of accumulated cash balances, by raising taxes or other receipts, by borrowing from the public or repaying less debt, or by curtailing other expenditures. This is the same way that the Government finances all other expenditures. ”From this, we can clearly see that the government does not make any money from the transaction in itself but instead uses the money from the investors for its own personal gains (similar to a traditional Ponzi Scheme). Also, from this we can also clearly infer that the money that a person invests into the system is not directly returned to him at retirement. Instead, some one else’s investments are used to cover his/her own benefits. Therefore, this operates similarly to a Ponzi Scheme because a new investor’s money is used to cover the old investor’s supposed return on investment. C4: The scam fails because of a lack of new investors The current problem with Social Security, like with that of a Ponzi Scheme, is that there is a decreasing number of new workers entering the labor force and an increase of people attempting to receive retirement benefits. According to the 2011 Social Security report by the government, Social Security funds will be exhausted by about 2036 (6). The Congressional Budget Office that social security will run dry 2037 because of the retiring population of baby boomers and the demographic changes. The increase in benefits to these people will not be offset by the new generation of workers, similarly to a Ponzi scheme (7). In January, projections from the Congressional Budget Office showed the program’s trust fund dwindling and hitting zero by 2037 as America’s baby-boomers retire and applications for benefits increase. This year, Social Security will pay out $45 billion more in retirement, disability and survivors’ benefits than it recoups in payroll taxes — a figure that almost triples when the new one-year payroll tax cut is included, CBO said (7). By the year 2036, the amount of seniors on Social Security will double from about 41 million to 78 million (8). ConclusionIn conclusion, SS is almost the exact same as a Ponzi Scheme. It transfers money from an older generation to a new one. No profit is made. Also, the scam eventually collapses because of a lack of new investors. . http://www.debate.org...