Social Security: The Ponzi Scheme Debate, Its Unconstitutionality and Fascist Inspiration and the Latest Developments

    
     Now that the general election is over, I can focus on posting more to my blog. One of the topics on which I had made notes during the campaign was about a subject that arose during the 2012 United States presidential election campaign, which has commenced prematurely. There was some debate about whether Social Security is a Ponzi scheme and whether it is unconstitutional. The debate was touched off by comments by Republican presidential candidate Rick Perry, the Governor of Texas.

     In a Ponzi scheme, the initial investors earn high returns on their investments, paid for by the additional investments of newer investors, and not by any profit generated by the fund manager, for without additional investors, there would not be sufficient funds to pay back the original investors. Such a fraudulent criminal scheme only works as long as there is a sufficient number of new investors to satisfy the demands by the original investors of a return on their investment, or else the scheme collapses for lack of sufficient funds. Whether or not Social Security meets the legal definition of such a scheme, it would undoubtedly not be permitted by law because of other problems, at least in many states. For example, an individual can pay Social Security payroll taxes (i.e. a premium) for his entire working life, but die the moment before he reaches retirement age and receive none of the money back. Any pension or old age insurance plan with terms like Social Security would be recognized as a rip-off for this reason alone, among other deficiencies, such as its lack of safeguarded reserves or its low rate of return on investment.

     Indeed, any government-run program can be ended by the government without any obligation to keep whatever promises it made. That a government program is not as safe as a legally-enforceable private plan is an implicit point in the scare tactics made by liberal Democrats every election against Republicans they claim would eliminate or cut Social Security, as if the government-run pension plan is like a private plan that is based upon a legal obligation to pay back the retiree the funds he contributed through the premiums he paid, when, in fact, the program is funded by nothing more than a tax which generates revenues the federal government uses as it pleases without any obligation to pay the taxpayer back even one cent. Thus, the liberal Democrats make the conservatives' point that government-run insurance plans are unreliable.

     The debate inspired Terry Jeffrey to write an article for the Conservative News Service that explains the constitutional questions about Social Security, which may be viewed at the following link, where it was republished: http://townhall.com/columnists/terryjeffrey/2011/09/14/authors_of_social_security_believed_it_was_unconstitutional.
    
     I would add another historical insight to the discussion: the Fascist origin of Social Security. According to the American Italian Historian Association, United States President Franklin Roosevelt sent a delegation to Fascist Italy in the 1930s to study Dictator Benito Mussolini’s socialist retirement pension plan. The American Social Security program was modeled on that fascist program.

     Shortly after the Ponzi scheme debate, Rep. Thaddeus McCotter (R-MI) unveiled his plan to reform Social Security without cutting benefits, raising the payroll tax or privatizing the program. An article about his proposal can be viewed at the following link: http://cnsnews.com/news/article/gop-prez-candidate-calls-reforming-social-security-personal-retirement-accounts. The plan would fund voluntary requirement accounts for older workers funded by federal spending cuts. The accounts would be based upon a mix of bonds and stocks, which would thus represent a conservative risk and would pay competitive returns.

     Meanwhile, there continues to be a congressional debate about whether or not to extend or even expand the 2% cut of the payroll tax which funds Social Security that was approved last year by Congress for 2011 as a temporary economic stimulus measure. The Democrats who support the extension of the cut that was proposed by United States President Barak Obama are accusing the majority Republicans, who had supported the temporary measure, of opposing a tax cut by not supporting its extension. The concern on the part of some conservatives was the loss of revenue to support Social Security and their opposition to the liberal Congressional Democrats’ predictable proposed offset: to increase the tax on the wealthy. The conservatives argue that an increase of taxes on the wealthy, who are often employers, would be counterproductive to the stimulative intent of the payroll tax cut. The Democrats did propose to include employers, who must match employee contributions, but who have been left out of the current tax cut, in the expanded tax cut, if the employers hire new workers. Such a proposal would be fairer and more economically beneficial. There is hope that a compromise can be reached on the payroll tax that neither increases workers’ taxes nor the federal debt, perhaps by offsetting spending cuts.