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Protecting America: Social Security Is Sound [1]

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Date: 2025-03-30

Social Security gets its money from a tax on labor. It requires employers to pay based on the amount they pay workers. This money is then used to pay for retirement for those workers.

The money for retirees doesn’t come from “investors”; it comes from the increase in money employers are required to pay for labor. This is what funds the system.

One of the constant lies about Social Security is that it isn’t fiscally sound, that it is running out of money or will run out of money. That’s simply not true. And part of this lie is based on deceiving people about who is paying for worker retirement. That’s the point of comparing it to a Ponzi scheme, because that is about investors and defrauding investors. This comparison is deceptive and should be stamped out.

Republican Lies About Social Security

Elon Musk recently accused Social Security of being “the biggest Ponzi scheme of all time”. (Trump allies press the White House to dial back Elon Musk's media interviews over his Social Security jabs) Musk is intelligent enough and well-informed enough to know that he’s lying to the public when he says this.

In a Ponzi scheme, new investors are conned into investing and their money is used to pay earlier investors. The scheme depends on its ability to hoodwink increasing numbers of investors, so that the people running the scheme can extract money from its cashflow while still paying enough early investors to keep conning people. It is illegal because we know that eventually there won’t be enough potential investors to support this forever. In this, it is like a perpetual-motion machine.

https://en.wikipedia.org/wiki/Ponzi_scheme

You will notice right away that Social Security is different. The money comes from the increased wages employers pay. Yet, people like Musk continue to push this lie. And it is obvious why. The rich want more money to go to them, not workers. Social Security is like a minimum wage in this respect. It requires employers to pay workers both when they can work and when they can’t—when they are disabled or retired.

Ending Social Security is nothing more than a money grab by the rich.

Not a New or Original Lie

Musk’s lie about Social Security isn’t a new or original lie. Republicans have been at this for decades.

John Harris: [Governor Perry, in your book, Fed Up,] you call Social Security the best example of a program that "violently tossed aside any respect for states’ rights." We understand your position that it’s got funding problems now. I’d like you to explain your view that Social Security was wrong right from the beginning. Rick Perry: Well, I think any of us that want to go back and change 70 years of what’s been going on in this country is probably going to have a difficult time. And rather than spending a lot of time talking about what those folks were doing back in the ’30s and the ’40s, ...we have got to be focused on how we’re going to change this program. Men and women who are receiving those benefits today, are individuals at my age that are in line pretty quick to get them, they don’t need to worry about anything. But I think the Republican candidates are talking about ways to transition this program, and it is a monstrous lie. It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, you’re paying into a program that’s going to be there. Anybody that’s for the status quo with Social Security today is involved with a monstrous lie to our kids, and it’s not right. John Harris: You mentioned the phrase "Ponzi scheme." Just this morning, your former political adviser, Karl Rove, said that type of language could be "toxic," as he put it, in a general election. Vice President Cheney gave an interview today to ABC News, when he said it’s not a Ponzi scheme, "It’s a program that a great many people depend on." My understanding is you’re standing by every word you’ve written in that book. Is that right? Rick Perry: Yes, sir. You know, Karl has been over the top for a long time in some of his remarks. So, I’m not responsible for Karl anymore. John Harris: Vice President Cheney, though, said it’s not a Ponzi scheme. You say it is. Rick Perry: Absolutely. If Vice President Cheney or anyone else says that the program that we have in place today, and young people who are paying into that, expect that program to be sound, and for them to receive benefits when they [reach] retirement age, that is just a lie. And, I don’t care what anyone says. We know that, the American people know that, but more importantly, those 25- and 30-year-olds know that.

From presidential debate 5 for the 2012 election

Date: 7 September 2011

Place: Reagan Library in Simi Valley, CA

Participants: Ron Paul, Rick Perry, Mitt Romney, Michele Bachmann, Herman Cain, Newt Gingrich, Jon Huntsman, and Rick Santorum

Hosts: MSNBC, Politico, and the Reagan Foundation

Truth About Social Security Funding

As a worker, if you look at your pay stub (paper, virtual), you will see that a certain amount of money has been withheld to pay for Social Security (and Medicare). The maximum contribution for Social Security is $171,100 this year ($168,600 for tax year 2024) (per SSA), so once your compensation for work reaches that level, no more is taken out.

Up to that point, 12.4% goes to Social Security tax (OASDI*). Half of that is paid by the employer and half by the employee, but let’s think about that for a moment.

Let’s say an employer was willing to pay $10/hour for a job and an employee was willing to work for that rate. But with Social Security tax, the employer would have to pay $11.24/hour for the employee to still get $10/hour and be able to pay their share of the tax. Effectively, Social Security has just required the employer to pay $1.24 more per hour.

This is where the money comes from to fund retirement for workers. It comes from the increase in wages required by the Social Security system. Without it, the worker would not be paid more, but would still be expected to fund their own retirement. In effect, it comes from what would be profits for the employer.

But since the employer is only willing to pay $10/hour for this job, how does the worker get the extra money necessary to fund their retirement if there’s no Social Security system? Some workers with highly desirable skills can charge enough for their labor that they can pay all their living expenses and still have extra money to put away for retirement.

Think about reality for a moment. Let’s say you live in a fairly normal part of the country. Let’s focus on Jackson County, Missouri, which is near Kansas City. I don’t know anything special about this area, but it’s in the middle of the country and it’s not an area that’s extraordinarily rich or poor. It’s not a New York City, Chicago, or LA of the country. If you live there, I apologize in advance for stereotyping you as representative of the non-ritzy areas of the country.

A living wage for an adult with a child is $39.39/hour. (MIT Living Wage Calculator)

The minimum wage in this area is $13.75/hour, which is higher than the federal minimum wage ($7.25/hour). So, for you to have enough to live on, you would have to make almost $40 an hour in this area, far over minimum wage. And that does not include money for retirement.

The Living Wage Calculator’s estimates are based on the costs of eight components, each of which represents a basic need: childcare, civic engagement, food, health care. housing, internet & mobile, transportation, and other necessities. It also includes relevant income and payroll taxes… In general, it is assumed that families select the lowest cost option that enables them to meet each of these basic needs at a minimum but adequate level. As such, the living wage does not budget for eating out at a restaurant or meals that aren’t prepared at home; leisure time, holidays, or unpaid vacations; or savings, retirement, and other long-term financial investments.

(What’s a living wage according to the MIT Living Wage Calculator? See here.)

The Profit Motive

So, where does the money come from to pay retirees? It comes from employers. This is what Republicans don’t like about it, and this is why people like Elon Musk want to convince people that Social Security is bad and will eventually go bankrupt. Ending Social Security is nothing but a scheme to make rich people richer.

I said last time that I’d explain why they can’t actually end Social Security. There isn’t enough money to get rid of Social Security.

Sorry, I’m going to defer that for next time.

(Or maybe a little further along in the series, let’s be honest.)

* OASDI stands for “Old-Age, Survivors, and Disability Insurance”. More in Wikipedia.

Series

The start of this series is:

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