Is Social Security a Government-run Ponzi Scheme?

By:  Sam Blumenfeld
07/14/2011
       
Is Social Security a Government-run Ponzi Scheme?

With President Obama claiming that if our debt limit is not increased by Congress, it may force the government to stop payment of Social Security checks, the public, and in particular those dependent on these monthly checks, are a bit confused about how the Social Security System is financed. The truth is that the government does not have to go out and borrow money in order to pay Social Security recipients. Those payments are covered by present receipts of FICA taxes. So the idea that Social Security payments are dependent on borrowed money is false.

Indeed, over the years these taxes have brought in more revenue than is actually needed to cover present payments of the Social Security System. The federal government spends that surplus and places in the Social Security Trust Fund government bonds at 5.50 percent interest, redeemable when the FICA taxes do not bring in enough money to cover Social Security payments.
 

With President Obama claiming that if our debt limit is not increased by Congress, it may force the government to stop payment of Social Security checks, the public, and in particular those dependent on these monthly checks, are a bit confused about how the Social Security System is financed. The truth is that the government does not have to go out and borrow money in order to pay Social Security recipients. Those payments are covered by present receipts of FICA taxes. So the idea that Social Security payments are dependent on borrowed money is false.

Indeed, over the years these taxes have brought in more revenue than is actually needed to cover present payments of the Social Security System. The federal government spends that surplus and places in the Social Security Trust Fund government bonds at 5.50 percent interest, redeemable when the FICA taxes do not bring in enough money to cover Social Security payments.

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Sam Blumenfeld (photo)

 

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