Rating of John Loughlin on Social Security: PolitiFact’s Truth-O-Meter Earns Itself a “Pants on Fire”
The “Truth”-O-Meter in today’s Providence Journal rates Congressional candidate John Loughlin’s comparison of social security to a Ponzi scheme as “False”.
Let’s take a look, shall we?
Here’s the definition of a Ponzi scheme.
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors.
Here’s how social security works.
The Social Security system is funded primarily by federal taxation of payrolls.
Okay, so the social security system funds the benefits (purported returns) paid to retirees (existing investors) out of the pockets of current employees (new investors).
Social security’s revenue situation is even worse than that, however. As of this year, seven years ahead of projections, spending on benefits exceeds revenue, meaning that all of the social security taxes paid by employees and employers IS NOT ENOUGH TO COVER benefits currently being paid out.
So is it fair to say that social security is beginning to lose a “consistent flow of money”? Returning to the definition of a Ponzi scheme,
With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.
In sum, it pays “returns” to investors from revenue it collects from new investors. It’s not pleasant to say, much less address. And there is no imminent threat to the checks of those currently collecting. But social security appears to be a textbook Ponzi scheme. Why are PolitiFact and the Providence Journal attempting to deflect this rather obvious characterization?