There’s No Disguising Social Security’s Fraud Now

Apr. 24, 2019
by Bob Adelmann

As John Adams said in 1770 while defending soldiers charged during the Boston Massacre: “Facts are stubborn things; and whatever may be our wishes, our inclinations, or the dictates of our passion, they cannot alter the state of facts and evidence.”

Here are the bald facts about Social Security: once its special government bonds have all been liquidated, estimated by its trustees to take about 15 years (or less), then the program will be revealed for exactly what it is: an intergenerational transfer, by force, of funds from workers to retirees. The trustees estimate that benefits will be cut to less than 80 percent of what retirees have been counting on.

It wasn’t supposed to happen. FDR promised. Upon signing the Ponzi scheme into law at the bottom of the Great Depression, he said:

We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politicians can ever scrap my social security program.

FDR was wrong on all counts: the program will end not because politicians have grown a backbone, but because of simple math.

First, there is no “legal right” to any Social Security benefits, thanks to a ruling by the Supreme Court in 1960. In Flemming v. Nestor, the high court ruled that payments under Social Security are not “property” rights and therefore not guaranteed to any beneficiary. That also explains why a covered person in the program is not able to “will” his rights under Social Security to his heirs upon his death. It’s a government handout, pure and simple, subject to the wiles of the political system and its inevitable destruction by simple intergenerational math.

Second, since the program is enforced by the government, by definition it is immoral. Think of the Social Security system as a pipeline, as the program’s own website describes it. At one end taxes are sucked out of employees’ paychecks, drawn through the pipe, spent by the government in exchange for special bonds that are then redeemed to pay benefits out the other end when they come due. Those who think they earned their benefits with their payments residing in a separate account with their Social Security number on it are just slow learners: there are no accounts with separate assets in them waiting for them to retire. Their taxes have already been spent, either paying benefits to others or by the government.

There are no “reserves” in those trust funds that administrators are managing: just an enormous pile of special government bonds that have been exchanged for those tax receipts to be paid off or redeemed at a later date. In sum, Social Security is just another grossly underfunded welfare state scheme all dressed up to look legitimate.


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There were protestations about the fraud from the very beginning. Back when the Republican Party still had some backbone (but not enough political clout to kill its enactment), its platform during the 1936 presidential campaign included this:

The so-called reserve fund, estimated at forty-seven billion dollars for old age insurance, is no reserve at all, because the fund will contain nothing but the Government’s promise to pay, while the taxes collected in the guise of premiums will be wasted by the Government in reckless and extravagant political schemes.

Starting in 2020, those trustees of Social Security will start redeeming those special government bonds at the U.S. Treasury to pay the increasing shortfalls between tax receipts and benefit payments.

Part of the scam is that there are three taxes funding it, not just payroll taxes. Those payroll taxes, a trillion dollars a year, are enhanced with income taxes used by the Treasury to redeem those special bonds the program exchanged for its tax receipts. And when the benefits are paid out they are taxed again.

It’s been a Ponzi scheme from the start. Consider Ida May Fuller, the very first plan participant to receive a check. That first check, #00-000-001, was dated January 31, 1940, in the amount of $22.54. Ida May, known to her friends as Aunt Ida, had no idea how she would benefit. She only knew that she had been paying into the system for less than three years. She stopped by the local Social Security office to inquire about what her benefits might be when she retired. She said, “It wasn’t that I expected anything, mind you, but I know I’d been paying for something called Social Security and I wanted to ask the people in [the office] about it.”

Born in 1874, Aunt Ida lived to the ripe old age of 100, collecting a total of $22,888.92 in Social Security “benefits” before she died in 1975. She had paid into the scheme a total of $24.75.

As with any Ponzi scheme, those first in line reap the most benefits. Those near the back of line are lucky to get their money back. The program has always been unsustainable, but has remained operational only because of government force requiring workers to participate and politicians tweaking the system from time to time by cutting or delaying benefits and increasing payroll taxes.

But with Baby Boomers overwhelming the system in coming years, the fraud and deceit can no longer be hidden from public view. And there’s little that cohort can do about it. As they age out of the system, their political clout to keep the system working also fades away.

FDR was wrong on all counts. But the pain from the withdrawal from the system when it ends will be felt for years.

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Sources:

The 2019 annual report of the Trustees of the OASDI Trust Funds

The Wall Street Journal: Social Security Costs to Exceed Income in 2020, Trustees Say

247wallst.com: Retirement Shock: It’s Worse Than Social Security Going Broke in 2035

Reason.com: Social Security Will Be Insolvent in 16 Years

Merriam-Webster.com: Definition of Insolvent

Background on Social Security

Claims of pyramid- or Ponzi-scheme similarities

History of Ida May Fuller, first beneficiary of Social Security

John Adams: Facts are stubborn things…

Flemming v. Nestor: no contractual right to receive Social Security benefits

FDR quote on Social Security

NewRetirement.com: 11 Ideas for Living on Nothing More than Social Security in Retirement

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