Economy Politics

Sorry, Honey: Our Joint Bank Account is a “Pyramid Scheme.”

So saeth the Freshman Representative from the Great State of Plausible Deniablity:

via GOP Freshman Comes Full Circle On Whether Social Security Is A Pyramid Scheme | TPMDC.

Last week, the GOP freshman told a group of constituents, “when they first conceived Social Security, they didnt think they were going to be paying benefits for 13-15 years. Thats one of the reasons why this pyramid scheme isn’t working.”

So, here’s how it works: every pay period, my wife and I put a set amount of money into our joint bank account. At the same time, we’re writing checks against that joint bank account for things like our mortgage, phones, internet and the like.

Provided that the amount of money we’re putting into the bank is the equal to or greater than the amount of money we’re paying out, there’s no problem. In fact, if the amount we contribute every month is greater than our monthly bills, we actually build up a surplus of extra money. Score!

If on the other hand our bills start climbing (which of course they are) and they climb to a point greater than the amount we’re paying in, then we will start to eat away at that surplus until we eventually run into the negative. At that point, our joint bank account is “insolvent,” as they like to say.

This is what the Congressman says is a “Pyramid scheme,” though I suspect most people would call it a fairly simple system of paying our shared bills.

Social Security works in precisely the same fashion, with all of us contributing to a collective “joint bank account,” in this case a trust fund. Meanwhile, our seniors collect at a monthly rate on the other side (this would be us as a society paying our debt to the ones who raised us and did their best not to leave the country worse-off than they found it). The Congressman is correct in stating that the amount going in needs to be the same or greater than what’s going out, but that’s about as correct as he gets on the issue.

He is quite wrong, for example, in stating that Social Security will be insolvent in twenty years. Social Security will be paying out more than it takes in – if we do nothing to correct the issue – some time in the next twenty years. But we still have that surplus thing, don’t we? Yes, we do. And our bank account will be quite solvent for the next seventy years – again, presuming that we do nothing about it at all.

If the joint bank account shared between my wife and I ran into insolvency, we may presume that the Republican answer would be to scrap the whole affair and default on our debts. They seem to like the word “default” a lot more, these days, than I might have expected. Or, maybe the solution is to tell our debtors to take half the money and try playing the Stock Market for the rest.

An easier solution would be to increase the amount of money we’re putting into the system. If we’re short twenty bucks, a hundred bucks, whatever amount for the month, we just chip in a little more – maybe plus a bit to start building up our surplus again.

In the case of Social Security, one answer would be to raise the cap on SS payments: above $106,000 a year, any additional money you earn does not get calculated to figure your Social Security tax. You don’t pay on that extra cash now, but we could eliminate or significantly raise that cap and have a whole lot more money going toward paying for our senior’s continued existence.

Or we could raise everybody’s Social Security (FICA) tax rate. Gasp! That great bugaboo of American politics: raising taxes. The current rate is around 6.2% and its gotten us by for eighty years. We raise that rate to 7 and we can probably go another eighty.

Or we could raise the retirement age. This would probably give us the biggest bang for the buck, but would also be the least-responsible choice. As often as we hear about the life expectancy going up in this country, the truth is that infant mortality rates are a greater contributor to that fact than elder care: the life expectancy for retirees has not changed much at all. So, raising the retirement age is just a Promethian yanking of the chain on people who don’t deserve it. But its an option, isn’t it?

There are lots of options. But junking the system or taking the billions of contributed dollars in FICA taxes and handing it over to Wall Street, that paragon of fiduciary responsibility? Well, that really is calling for radical change, isn’t it?

By Tommy Belknap

Owner, developer, editor of DragonFlyEye.Net, Tom Belknap is also a freelance journalist for The 585 lifestyle magazine. He lives in the Rochester area with his wife and son.