Killing The "We Paid Our Taxes; We Earned Our Benefits" Social Security Ponzi Meme

Tyler Durden's picture

Submitted by Gary Galles of the Ludwig von Mises Institute,

“We paid our Social Security and Medicare taxes; we earned our benefits.” It is that belief among senior citizens that President Obama was pandering to when, in his second inaugural address, he claimed that those programs “strengthen us. They do not make us a nation of takers.”

If Social Security and Medicare both involved people voluntarily financing their own benefits, an argument could be made for seniors’ “earned benefits” view. But they have not. They have redistributed tens of trillions of dollars of wealth to themselves from those younger.

Social Security and Medicare have transferred those trillions because they have been partial Ponzi schemes.

After Social Security’s creation, those in or near retirement got benefits far exceeding their costs (Ida Mae Fuller, the first Social Security recipient, got 462 times what she and her employer together paid in “contributions”). Those benefits in excess of their taxes paid inherently forced future Americans to pick up the tab for the difference. And the program’s almost unthinkable unfunded liabilities are no less a burden on later generations because earlier generations financed some of their own benefits, or because the government has consistently lied that they have paid their own way.

Since its creation, Social Security has been expanded multiple times. Each expansion meant those already retired paid no added taxes, and those near retirement paid more for only a few years. But both groups received increased benefits throughout retirement, increasing the unfunded benefits whose burdens had to be borne by later generations. Thus, each such expansion started another Ponzi cycle benefiting older Americans at others’ expense.

Social Security benefits have been dramatically increased. They doubled between 1950 and 1952. They were raised 15 percent in 1970, 10 percent in 1971, and 20 percent in 1972, in a heated competition to buy the elderly vote. Benefits were tied to a measure that effectively double-counted inflation and even now, benefits are over-indexed to inflation, raising real benefit levels over time.

Disability and dependents’ benefits were added by 1960. Medicare was added in 1966, and benefits have been expanded (e.g., Medicare Part B, only one-quarter funded by recipients, and Part D’s prescription drug benefit, only one-eighth funded by recipients).

The massive expansion of Social Security is evident from the growing tax burden since its $60 per year initial maximum (for employees and employers combined). Tax rates have risen and been applied to more earnings, with Social Security now taking a combined 12.4 percent of earnings up to $113,700 (and Medicare’s 2.9 percent combined rate applies to all earnings, plus a 0.9 percent surtax beyond $200,000 of earnings).

Those multiple Ponzi giveaways to earlier recipients created Social Security’s 13-digit unfunded liability and Medicare’s far larger hole. And despite politicians’ repeated, heated denials, many studies have confirmed the results.

One recent study of lifetime payroll taxes and benefits comes from the Urban Institute. For Medicare, they calculated that (in 2012 dollars) an average-wage-earning male would get $180,000 in benefits, but pay only $61,000 in taxes — “earning” only about one-third of benefits received. A similarly situated female does even better. The cumulative “excess” benefits equal $105 trillion, with net benefits increasing over time.

The Urban Institute’s calculations revealed a different situation for Social Security. An average-earning male who retired in 2010 will receive $277,000 in lifetime benefits, $23,000 less than his lifetime taxes, while for females, their $302,000 in lifetime benefits approximates their lifetime taxes. And things are getting worse. By 2030, that man will be “shorted” 16 cents (10 cents for women) of every lifetime tax dollar paid.

While those results resoundingly reject “we earned it” rhetoric for Medicare, the Social Security results, with new retirees getting less than they paid in, could be spun as “proving” Social Security is not a Ponzi scheme. However, that would be false. The reason is that Medicare is still in its expansion phase, as with Medicare Part D, piling up still bigger future IOUs. However, Social Security has essentially run out of new expansion tricks, although liberal groups are pushing to apply Social Security taxes to far more income as one last means of robbing those younger to delay the day of reckoning. That simply means that we are being forced to start facing the full consequences of the redistribution that was started in 1935. That is, the current bad deal Social Security offers retirees is just the result of the fact that it has been a Ponzi scheme for generations, and someone must get stuck “holding the bag.”

In fact, perhaps the best description of the current Social Security and Medicare situation comes from Henry Hazlitt, long ago, in Economics in One Lesson:

Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.

Social Security and Medicare’s generational high-jacking has become “the third rail of politics” in large part because seniors want to believe that they paid their own way. But they have not. They have only paid for part of what they have gotten. The rest has indeed been a Ponzi scheme. And as Social Security is already revealing, the future cannot be put off forever, however much wishful thinking is involved. Some are already being forced to confront the exploding pot of IOUs involved, and it will get much worse.

The supposedly “most successful government program in the history of the world,” according to Harry Reid, has turned seniors into serious takers. The fact that some of them are now starting to share the pain caused by those programs does not contradict that fact. It just shows the dark side of the most successful Ponzi scheme in the history of the world.

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TeamDepends's picture

Strength is weakness.  War is peace.  Hate is love.

Curiously, the chiming of the hour seemed to have put new heart into him.  He was a lonely ghost uttering a truth that nobody would ever hear.  But so long as he uttered it, in some obscure way the continuity was not broken.  It was not by making yourself heard but by staying sane that you carried on the human heritage.

Orwell, 1984

Beam Me Up Scotty's picture

Most people have taken out way more than they have contributed to either SS or Medicare. You can't pay 100k into Medicare and then have a million dollars of medical care when you are an old fart and think the system will be viable. And you shouldn't get one thin dime more out of SS than you put into it. If you outlive it then you should have saved more during your life.

Unknown User's picture

Social Security is a social insurance program that is funded through a dedicated payroll tax - the Federal Insurance Contributions Act (FICA).  SS is an "insurance" program that belong to the people who paid for it.

Beam Me Up Scotty's picture

Insurance works really well when people take more out of it then they pay in premiums. Guess what happens? Either the insurance company raises rates or it goes put of business. Learn how insurance works.

And SS has been raided by your fearless leaders to hand out goodies to the sheeple. It's a great invesent when you give Uncle Sam a dollar today to get 75 cents back when you retire. Learn to save for your own retirement.

MeMadMax's picture

When social security first started it was "voluntary".

When it start failing because not enough people were paying to everyone, everyone was forced to pay into it.

Now it's failing even thou everyone is paying into it, whats next?

You bank accounts! Hand it over, assholes!

Stackers's picture

And we do know who to blame for all this too. ........ LBJ and his unified budget


This was what effectively turned SSC into the ponzi scheme it is today

CH1's picture

I'll settle for half of what they've stolen from me.

When can I expect the check?

JohnnyBriefcase's picture

If the government does it then it isn't stealing. Stealing is bad and the government is good so therefore it's impossible for government stealing to be bad.

Shelter in place, Subject. We are sending agent's to your residence to correct your thinking.

philipat's picture

In any "Pension" plan, return on investments should close the in/out gap and so should be factored into the calculations. Yes, I know that SS is a pay-go tax BUT there is SUPPOSED to be a Trust fund that should generate returns?

Of course, now that Bernanke has pushed returns on what used to be "Safe" pension fund type investments down to zero, it is kind of academic. The Benanke transfer of wealth upwards is, similarly, going to result in masssive solvency issues for insurance Companies and private pension plans going froward

boogerbently's picture

I love it when 30 year olds talk about subjects they are COMPLETELY ignorant about.

Allow me to fill in the missing paragraph between these two sentences:

"The money you pay towards Social Security does not go into a personal account for when you retire."

"Instead, Social Security is a "pay as you go" program meaning the money that is collected now is used towards current payouts."

Social Security used to go into a SEPARATE Social Security account. It was such a WELL DESIGNED program it developed a HUGE surplus. Well, it really wasn't a "surplus" it was the money accumulated by ALL the baby boomers during ther working years that was SUPPOSED to be used to pay them after they retired.
The politicians couldn't stand to see all that money just sitting there (when they could be using it to buy votes). So they moved those dollars into the "general fund".......and spent them. Oh, they gave Soc. Sec. IOU's. $3.5 TRILLION worth of them. They all decided it would be easier to convince todays young people that they are being cheated having to pay the seniors their retirement (instead of honoring those IOU's). Now it's a "pay-as-you-go" program, because that HUGE surplus is gone, now that all those baby boomers are retiring.
They say it's because we're living longer, or because there used to be 8 people paying for 1 senior but now it's only 4 paying for 1 retiree, or because of the cost-of-living increases....
Now, taken individually, all these STATEMENTS are facts, but, that is NOT why Soc. Sec. is underfunded. (Typical political doublespeak).


They love to tell you about how much more we're collecting, than we put in. The figure they conveniently leave out of the equation is the COMPOUND INTEREST that money had earned EVERY YEAR for the last 50 years!
It is underfunded because that SURPLUS was stolen and not repaid, the tax that was "cut", (Bush Tax Cuts) that eveyone is now enjoying, was the SS tax, there is a "cap" on the tax. People only pay for the SS tax on the first $108K of there income, no matter how much they make! Many people who NEVER paid into SS are collecting payments from them.
SS is NOT an entitlement, My employer and I paid into it since I was 15 years old. We were FORCED to, it was a LAW. Now they want to make excuses why we shouldn't get it.
I'll tell you what, cut welfare, disability, unemployment, food stamps, free school food programs, public pensions, foreign aid.......BEFORE you cut the retirements of people actually PAID INTO their own program.
And here's a novel idea. Investigate and prosecute fraud. People on disability doubled in the last year or so. NO ONE thinks THAT'S a little suspicious?

Gamma735's picture

Don't worry your little minds, Boomers.  It is all good. The government will never miss a SS payment.   They will just print more money to make your payment and someday soon, your whole ss check will buy you a McDonald's happy meal.  Hope you can make it last all month and with enough happy meal boxes you can make a shelter as well.

FEDbuster's picture

When SS started the retirement age was set so half the would be recipients would have already died prior to payouts.  The current benifit age should have been raised to 72 for men and 74 for women.  If you want to retire earlier save your money and invest it.  If the benefit age had been adjusted for average life expectancy, SS would be running surpluses at much lower tax rates.  It would still be a Ponzi though, best bet phase it out.

Medicare and Obamacare, etc... need to be reformed to a Lifetime Health Savings Account with a very large deductible catastrophic insurance component.  All hospitals should have the ability to refuse treatment or limit treatment to those without the ability to pay.

buyingsterling's picture

Someone could never do a lick of work in their lives, rely on others for all of their needs, treat their own bodies like garbage, create multiple physical and psychological addictions, and Americans would still spend an essentially unlimited amount of money extanding their life with sick care. With regard to health/sickness, personal responsibility is a no-go. Go figure. One could chalk it up to the golden rule, or to cowardice.

GetZeeGold's picture
 half the would be recipients would have already died prior to payouts.


Enter Obamacare.....when we're done.....there will be a handful alive to collect SS.

Of course they'll have to spend it on healthcare....and birth control.

Oracle 911's picture

Why the "partial Ponzi scheme" sounds to me as "little bit pregnent"?

boogerbently's picture

The problem I have with the anti-SS children on this website is that most whine about the govt stealing their money, but endorse them stealing mine.

Consistent thinking?

SendMeYourWorthlessMoney's picture

You just described the heirs to the Walmart fortune.

Cloud9.5's picture

We know and If I could dig up Lyndon Johnson and drag him around the capital I would.  He is the guy who screwed us.  And you know what.  He was not a boomer.  He came from the greatest generation.  We had as much choice then as you do now.  All of our choices were pre selected.

jeff montanye's picture

and while they are cutting those other programs before they cut ss, here's a few more: war on drugs, endless war on whomever whoever decides to wage it, all the corporate oligopoly/monopoly protection like this, the monstrosity that is obamacare (every other advanced nation pays half of what the u.s. does for healthcare and, except for the rich or the very best insured here (some overlap there), gets better results), and a good chunk of the standing army, et. al. war is a racket.

and the article above compares taxes paid with benefits received without any consideration of the time value of money/compound interest.  zirp hasn't always been and won't always be.


mrdenis's picture

If there is no "lock box" like Al Gore said ,why in hell does the Gumbment keep sending me thoes little account balances every year ...and how much 

i'll receive when I retire this one of thoes ...If you like your SS you can keep it deals ? 



graspAU's picture

Just an estimate of the gratuity the US Congress may send you based on the current rules that Congress may change at any time. Still not a contract, and not insurance. Sort of like an employer who promises severance pay of 1 month for every 2 years you work at the company, with the fine print reading they may adjust or abolish the plan at any time. Then they adjust is down slowly over time hoping noone notices.

Dr. No's picture

I junked you since all your comment was basically outlining the things that happened to the money and how it would be great if it was still there.  It ignored the fact the money is gone.

ParisianThinker's picture

How right you are! Matt Taibbi, in his book, "Griftopia" explains that Social security taxes were raised and paid for by the babyboomers. But politican's auacious power grab, lead by Greenspan, stoled it all.

However, even more interesting is the report from the Congressional Research Service which says those who paid into Social Security won't get a dime more than the bought off Congress says!

There is no contract as to how much money those who "paid for their benefits" will get. Forget the statements that indicate how much you are to receive as well as all the propaganda about working until age 70. So please stop crying, moaning and groaning over what the "babyboomers" will get.

We better work to help our parents and grandparents. We already know we will die young and in poverty unless they help us. Isn't it best to work for the survival of our loved ones as well as ourselves? How can you put any trust into a corrupt system that manipulates morgtages, forex, libor, privacy, and goes against the US Constitution via "secret courts".

The goal of your government, as many have reported, is genocide of its own population. They only needed "give me your poor" for a very short time. Now they have gobalization, software, and robots to replace YOU, me, our parents and grandparents. We were just born into the "wrong era" or the last leg of of bankrupt capitalistm. 

But if we help our parents and grandparents, we will inherit everything from them without working just like the rich do now.

The risks to your life is not Social Security or Medicare. The risk is all the sugar, fat and salt and GMO put into the junk food Americans consume. Our oceans are being destroyed by radiation, oil, toxins, etc. Work locally to clean up your area of the planet.


ParisianThinker's picture

The Congressional Research Service says that no one has a contract for the amount of benefits they will receive from Social Security.

It is all up to the "Koch Brothers and their ilk's payoffs to Congress as to how much you will not receive. All those little pieces of paper saying how much you will receive is a joke. You will not receive what they say.

Matt Taibbi, in his book "GRIFTOPIA" tells how the social security taxes were raised twice to make certain the babyboomers paid for their benefits. They did pay, but the money was "used" for "other purposes at the insistence of Alan Greenspan, the bubble creator.

Beam Me Up Scotty's picture

Oh please.  Its the Koch Brothers fault.  ROFLMAO!!  Its your Keynesian money printers that are robbing you of your retirement, not the Koch Brothers.  Between the Keynesians and the Kenyan, they have got it all covered.

ParisianThinker's picture

The Congressional Research Service says that no one has a contract for the amount of benefits they will receive from Social Security.

It is all up to the "Koch Brothers and their ilk's payoffs to Congress as to how much you will not receive. All those little pieces of paper saying how much you will receive is a joke. You will not receive what they say.

Matt Taibbi, in his book "GRIFTOPIA" tells how the social security taxes were raised twice to make certain the babyboomers paid for their benefits. They did pay, but the money was "used" for "other purposes at the insistence of Alan Greenspan, the bubble creator.

BooMushroom's picture

Yes, you put the money away. It was stolen during broad daylight, and the thieves used the money to buy votes, all of which have been used. There is now nothing left. It is sad and unfair and criminal.

And it IS.

Not Goldman Sachs's picture

So algores' lockbox was not incorrect? Perhaps a day late, dollar short. I say go after the pension funds of the politicians that wrote the IOU' won't be enough but it would be justice and would make me feel better about getting robbed.

Groundhog Day's picture

I would be happy to forego all my contribution s of the past 20 years if they just leave me alone going forward

Crash Overide's picture

I will NEVER see a DIME of SS money being as young as I am, nor do I want the tax taken out of my check so...  so what the fuck am I paying for and why should I be FORCED to?

Rubbish's picture

The young boomers, myself included 58 paid for our parents SS and now my kids want to whine. Pussies.....


Self employed 40 years so I got to pay both sides, tell you what, you give me half, no fucking interest and I won't go full retard on your asses.

Beam Me Up Scotty's picture

I'm in the same boat and I am 45. They will move the goalposts on me and people who are younger than I am. They will make you work longer. They will pay you less. They will lie about inflation so they don't have to increase the COLA. They will do whatever they can to screw the people who paid into it.

cynicalskeptic's picture

Less than half the men in my family have lived bEyond 65 to collect ANYTHING.  Blue collar working class they've seen union benefits disappear along with their jobs.  

If you're working class - and I mean WORKING - physical labor 'working' - you wear out and die long before you collect much of anything.  Your spouse may outlive you and benefit if you're lucky.  (My mother worked until almost 70 for the extra accumulated benefits but then her Fortune 500 employer changed the rules for non-exec employees shortly after she retired. ) 

I'd love to see how many people have paid in and collect NOTHING because they died first.  I'd also like to see how many truly wealthy people are collecting - people who do not need one dime of government help.

SocialSecurity was meant as a safety net - not to be your ONLY 'retirement ' savings but then companies shirked THAT responsibilitiy and converted defined benefit pensions into defined contribution plans that Wall Street ate up.   no matter what you do now it seems like you're screwed but it does seem that fewer and fewerare paying into a system that benefits more and more.  THAT IS NOT SUSTAINABLE.

Errol's picture

I've always been employed, so I "only" paid half from my pay (my income was reduced by the amount my employer "contributed").  I would take the same deal; give me back the money I "contributed" and I will sign out of the system...

CheapBastard's picture

"If you want to keep your SS benefits, you can keep your SS benefits."

savagegoose's picture

gimme half of the gold  what i paid in, at the price of gold when i paid it in.

savagegoose's picture

gimme half of the gold  what i paid in, at the price of gold when i paid it in.

savagegoose's picture

gimme half of the gold  what i paid in, at the price of gold when i paid it in.

savagegoose's picture

gimme half of the gold  what i paid in, at the price of gold when i paid it in.

mick_richfield's picture

Lucky bastard!

You just got 2x the amount you paid in, and in gold!

John_Coltrane's picture

I feel exactly the same way after paying the maximum amount into the system every year of my working life.  And I always felt that it was the best part of my taxes since first my grandmother and then my Mom both of whom worked over 40 years could benefit.  I always knew it was a ponzi and my attitude is I'll take it as soon as I'm eligible  and invested and saved so I wouldn't be at all dependent on the government.  As for health care, with good genes and exercise if you make it to 65 you likely won't have significant problems (or ones that have an actual medical solution).

But compared to all the other useless government functions, these programs are the best.  Why should people who never worked a day in their life be eligible for disability?  And most qualify for mental problems or back problems, obviously frauds in both cases as they are unprovable.   And free phones?  And food and free rent without any work?  And free medical care for able bodied adults?  Pussies is too soft a term for these lazy bastards.  

mick_richfield's picture

Of all government programs, these are, indeed, the best -- from a certain point of view.

Because it's very difficult to make otherwise hard-working, self-responsible people look to the government and clamor for something that they 'deserve'.

These programs, and the way they are marketed, accomplish that feat.

The goal of the demons who run the world is to corrupt all Americans, not just the beasts who are happy to live at the expense of others.  Social Security was brilliant. 

Colonel's picture

I'd take the quotes off there partner.

sessinpo's picture

Rubbish     "The young boomers, myself included 58 paid for our parents SS and now my kids want to whine. Pussies.....

Self employed 40 years so I got to pay both sides, tell you what, you give me half, no fucking interest and I won't go full retard on your asses."


Comment: Perhaps you and others in the same situation have it backwards. Those whining kids might actually understand something OUR generation didn't (yes that includes me). We (and you) were being ripped off by being part of the SS scheme. So, it is YOU that is whining that your kids are actually smart enough to see that. The question is, will the kids actually do something about it.


Midas's picture

Well, if you are one of the millions of kids without a job, it doesn' really matter!  The unemployed probably aren't worried too much about getting back what they are not paying in.

GetZeeGold's picture



Well they'd better get a job fast.....cause they owe a LOT of money.

ParisianThinker's picture

Well, the only hope is to leave those pussies one red cent, and nothing more.