Letter to Rep. Ryan: Social Security Is Not a 'Ponzi Scheme'

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Written by Dean Baker   
Wednesday, 21 September 2011 12:30

The Honorable Paul Ryan
1233 Longworth House Office Building
United States House of Representatives
Washington, DC 20515

Dear Representative Ryan:

During a recent interview on The Laura Ingraham Show, you made a number of remarks about Social Security, among them, characterizing Social Security as a "Ponzi scheme," that would yield a negative rate of return, and saying, “…[Social Security] is not working, it is going bankrupt, and that current seniors will be jeopardized the most by the status quo.” None of these statements are accurate.

Almost no one will get a negative real return on their Social Security taxes. This issue has been researched extensively and assuming a 2 percent real discount rate, even as late as 2030, most new retirees will receive more in benefits than they paid in taxes. There is simply no basis for the claim that beneficiaries will receive negative returns on their taxes as the value of scheduled benefits actually rises in later years since life expectancy, and therefore the expected period of retirement, will continue to increase. The only way we would see negative returns would be if Congress voted to cut benefits.

In fact, if Congress makes no changes at all to the program, the latest CBO projections show that Social Security will remain fully solvent through 2038 and would pay about 80 percent of full scheduled benefits from then on, indefinitely. It is quite difficult to make the case that a system that pays full benefits for the next 27 years is not working or is going bankrupt, let alone claim that it jeopardizes the retirement security of current seniors.

As Chairman of the House Committee on the Budget and charged with making recommendations about our nation’s finances, I hope that you will be careful to present the situation more accurately in future public statements. If you would like any additional background on the program, I would be happy to assist you.