Social Security is a Ponzi scheme (Part 9)

Sen. Hutchison Speaks at the Heritage Foundation Forum on Saving Social Security

Uploaded by on Jun 21, 2011

Senator Kay Bailey Hutchison delivered remarks regarding her landmark proposal on entitlement reform, the Defend and Save Social Security Act at the Heritage Foundation’s “Saving Social Security” event. Sen. Hutchison announced that Senator Jon Kyl (R-AZ), member of Biden’s budget working group, has lent his support of her bill as the original cosponsor. At her press conference last week, Sen. Hutchison unveiled her Social Security proposal, and today she reiterated the urgency of putting Social Security on the table in the Biden budget group discussions. Sen. Hutchison sent a letter to Vice President Joe Biden last week urging him to incorporate Social Security reform in the ongoing deficit reduction debates that he is leading.

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Governor Rick Perry got in trouble for calling Social Security a Ponzi scheme and I totally agree with that. This is a series of articles that look at this issue.

July 26, 1996
Social Security Choice Paper no. 4

Privatizing Social Security: A Big Boost for the Poor

by Michael D. Tanner

 Critics of Social Security privatization often warn that such proposals hold serious dangers for the elderly poor. However, a closer examination of the evidence indicates that the poor would be among those who would gain most from the privatization of Social Security.

By providing a much higher rate of return, privatization would raise the incomes of those elderly retirees who are most in need. Although the current Social Security system is ostensibly designed to be progressive, transferring wealth to the elderly poor, the system actually contains many inequities that leave the poor at a disadvantage. For instance, the low-income elderly are much more likely than their wealthy counterparts to be dependent on Social Security benefits for most or all of their retirement income. But despite a progressive benefit structure, Social Security benefits are inadequate for the elderly poor’s retirement needs.

Michael Tanner is director of health and welfare studies at the Cato Institute.

More by Michael D. Tanner

In addition, the progressivity of Social Security is undermined by differences in life expectancy. Because the wealthy generally live longer than the poor, they receive more total Social Security payments over the course of their lifetimes. In a privatized system, an individual’s benefits would not be dependent on life expectancy. Individuals would have a property right in their benefits. Any benefits remaining at their deaths would become part of their estates, inherited by their heirs.

Finally, Social Security drains capital from the poorest areas of the country, leaving less money available for new investment and job creation. Privatization would increase national savings and provide a new pool of capital for investment that would be particularly beneficial to the poor.

For those reasons, Social Security privatization should be viewed as a big boost to America’s poor.

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