The evening of September 7, 2011 brought a surprising Republican debate. As usual, candidates used this nationally broadcast event to promote themselves and solidify their position. One member in particular, Texas Governor Rick Perry, solidified his position on Social Security stating, "You cannot keep the status quo in place and not call it anything other than a ponzi scheme." Naturally, the question becomes: Is Social Security, as we have come to know it in the United States, a Ponzi scheme?
The SEC has defined a ponzi scheme as, "An investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors." One can see how Governor Perry would see Social Security as a Ponzi Scheme. As working Americans, we make payments towards Social Security through payroll taxes, which could be seen as the "contributions" by new investors. Our payroll taxes are collected in various OASDI (Old-Age, Survivor, and Disability Insurance) trust funds where they collect interest until they are paid out as benefits or expensed by the Government. It would seem that Perry is correct, but is he really?
According to the 2010 OASDI Trustees Report, the ratio of contributions to benefits were 390% for OASI and 178% for DI. From 1999-2009 the ratios were over 100% which would seem to refute Governor Perry's Ponzi statements. Looking farther into the report, we see projections for 2010-2019. The projections show ratios based on three different increases in "the number of persons with taxable earnings." OASI ratios steadily decrease throughout the period in two of the three scenarios. DI ratios steadily decrease to the point where the fund will no longer be able to provide 100% of the benefits. Between 2013-2015, the fund will no longer cover 100% of benefits. In other words, by 2015 current payroll taxes will have to be used to pay for current benefits. It would seem Mr. Perry is correct, making Social Security illegal.
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