Social Security is facing attacks, primarily driven by DOGE, the Department of Government Efficiency. Elon Musk has called the program a “Ponzi scheme”. These attacks on Social Security mean the federal government is talking about budget cuts, staffing reductions, and office closures, all of which threaten access to benefits and services for 69 million Americans.
What is a Ponzi scheme? A form of fraud that cheats investors; profits are paid to early investors (especially the creator of the scheme) with funds from new investors. Investors are misled by showing higher than average profits on business activities. However, there usually aren’t any business activities. The scheme works as long as new investors continue to buy in so money is being made, but it collapses when people want to cash out. Although he was hardly the first to create this scam, the fraud scheme was named for Italian businessman Charles Ponzi. His earliest investors received 100% returns in 90 days on investments in foreign postal coupons. Then “everybody” wanted to buy in, and only their contributions were used to pay dividends. In 1920 Ponzi took in huge amounts of money throughout the United States, and the fraud received a lot of press coverage when it collapsed.
It is true that the Social Security system is “pay-as-you-go”. Current workers’ payroll tax payments are used to pay people who are already retired. Wage and salaried workers pay 6.2% (7.65% when you include the amount for Medicare) from every paycheck, shown as FICA, and that amount is matched by their employers. The total 15.3% is credited to their accounts in the Social Security system. FICA taxes are collected on the first $176,100 of a person’s earnings from their employment.
Social Security is more like a combination of a business’s retirement plan and an insurance policy, run by the government. The idea was to guarantee that workers would have some kind of income when they retired or if they were disabled. Funds are also used to pay survivors or dependents when a worker dies. Like all insurance policies, funds paid in now are paying today’s claims. Some people pay in more than they receive, and others receive more than they have paid in.
I doubt that Elon Musk has ever paid into Social Security, because it is not collected on dividends, capital gains, or corporate profits—the kinds of income the wealthy earn.
It is true that baby boomers are retiring and people are living longer, so there is currently more being paid out than into the Social Security system. However, this was anticipated. President Carter and Congress in 1977 began gradually increasing FICA rates. Carter established a Commission on Social Security Reform, led by Alan Greenspan. President Reagan signed their recommendations into law in 1983. Those recommendations included an increase to the amount paid in, and a gradual increase in the full retirement age from 65 to 67. People can retire and draw social security any time from age 62 to 70, and if they wait, they receive a larger monthly amount.
To ensure there would be enough funds to pay out when the baby boomer generation retired, the Social Security Trust Fund was established. The Trust Fund is invested in government securities and earns interest. At its highest in 2020, the trust fund had $2.908 trillion. Since then, its value has dropped; it was $2.721 trillion at the end of 2024. Remember that this was anticipated, which is why trillions of dollars are set aside for Social Security payments.
Social Security will be able to pay out full benefits until 2034. Can it be corrected to pay out beyond that point? Yes, either by reducing benefits or increasing taxes paid in. These tweaks would not be difficult for Congress to do. However, they have been challenged by the Trump Administration to reduce spending, and Social Security is currently the federal government’s largest expense. Social Security has also lifted more Americans above the poverty line than any other program.
Is Musk correct that “Social Security is the biggest Ponzi scheme of all time”? Granted, there are some similarities. However, Social Security is not fraudulent. It is transparent, has multiple layers of oversight, and doesn’t promise unrealistic returns. Ponzi fraud? – The answer is NO.