Dissecting a GOP Senator's Misleading Social Security Attack

Analysis December 04, 2024 at 02:05 PM
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What You Need To Know

  • Sen. Mike Lee of Utah took to X this week to lambast Social Security.
  • Lee likened the social insurance program to a Ponzi scheme set up to cheat American workers.
  • The thread, amplified by Elon Musk, paints a distorted picture of how Social Security, and the government's borrowing from it, really works.
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This is the latest in a series of columns about Social Security and retirement income planning. 

Utah’s senior senator, Mike Lee, took to the social media platform X this week to compare the U.S. Social Security system to a Ponzi scheme set up to cheat the American people out of freedom and security in retirement.

The lengthy thread immediately drew condemnation from advocacy groups focused on protecting and expanding the Social Security system, including Social Security Works and the National Committee to Preserve Social Security and Medicare. The groups called Lee’s comments damaging and misleading, and they challenged federal lawmakers to reject the position.

“Of all the deceptive sales techniques the U.S. government has used on the American people, one of them — the Social Security Act — gets far too little attention,” Lee wrote. “In 1935, the American people were sold a bill of goods.”

Lee’s thread characterizes the Social Security system as a “bait and switch” — essentially a ploy by Congress to raise taxes in order to create a big pool of money that federal lawmakers can “routinely raid” and use for “whatever the current Congress deems ‘necessary.’”

It’s a scary suggestion, but as a number of independent Social Security experts have expressed to me, it’s just not a fair portrait of the program.

Yes, Social Security has its flaws and its funding challenges, but to suggest that the program is some kind of conspiracy aimed at harming or misleading the working public is false. The reality is that Social Security remains a fundamental part of the U.S. retirement system — one that is admittedly showing its age.

To give Senator Lee due credit, there is no doubt that reform is needed and that tough questions need to be asked and answered about the long-term future of the program. But if there’s one thing I know about the path ahead, it is that fearmongering and dissembling won’t help us find the right approach to long-term solvency.

An Important History Lesson

Lee’s thread starts by recounting the early history of the Social Security system, and particularly its first constitutionality test in a case known as Helvering v. Davis, which was ruled on by the Supreme Court in 1937.

As recounted on the Social Security Administration’s website, the case involved a shareholder who tried to stop a corporation from paying taxes and making wage deductions required by the Social Security Act. The shareholder argued that the taxes were void and that compliance would cause irreparable damage to workers and their employers.

After extensive litigation and argumentation, the Supreme Court eventually ruled that the Social Security Act was constitutional — because Congress has the power to tax and spend money for the general welfare of the public. The court also adopted a liberal interpretation of the “welfare clause” in the Constitution, determining that the Social Security Act did not violate the Tenth Amendment.

That determination allowed the Social Security system to operate as its designers intended, drawing funds from current workers in the form of payroll taxes in order to fund the benefits owed to retirees. At times in the program’s 90-year history, this framework has facilitated the creation of sizable trust funds used to support the payment of both disability and retirement benefits.

Over time, however, the aging of the population and the increase in the amount of earnings that aren’t subject to Social Security taxation have created big funding gaps, such that the program is now facing an insolvency date in the early to mid-2030s.

An Unfair Interpretation

Lee’s tweet thread uses this very real history to suggest that workers’ payments into the Social Security system are the same as any other dollar paid in taxes. In his view, that means “wasted.”

“Now, let’s talk about what happens to ‘your money’ once it’s in the government's hands,” Lee wrote. “Spoiler alert: It’s not managed like your IRA or 401(k). … First of all, this money doesn’t sit in a nice, individual account with your name on it. No, it goes into a huge account called the ‘Social Security Trust Fund.’”

Lee then implied that the government “routinely raids this fund.”

“Yes, you heard that right,” he wrote. “They take ‘your money’ and use it for whatever the current Congress deems ‘necessary.’”

Again, it’s a scary proposition, but it’s misleading.

As explained in the Social Security trust fund guide published by the Center on Budget and Policy Priorities, money that the federal government borrows — whether from investors or from Social Security — is used to finance the ongoing operations of the government in the same way that money deposited in a bank is used to finance spending by consumers and businesses.

“The bank depositors will get their money back when needed, and so will the Social Security trust funds,” the guide explains. “In fact, that has been happening since 2021, as the combined trust funds have been drawing down their accumulated reserves.”

The guide further notes that, when the rest of the budget is in deficit, a Social Security cash surplus allows the government to borrow less from the public to finance the deficit.

“The Treasury always uses whatever cash is on hand — whether from Social Security contributions or other earmarked or non-earmarked sources — to meet its current obligations before engaging in additional borrowing from the public,” the guide explains. “There is no sensible alternative to this practice. After all, why should the Treasury borrow funds when it has cash in the till?”

Better Off on Wall Street?

Lee’s thread concludes by arguing that workers would be better suited by putting their money into “literally ANYTHING” other than Social Security — a mutual fund, real estate or even a basic savings account.

“Do the math: with Social Security, you’re looking at a return that's pathetic compared to market averages,” Lee said. “It’s not even an investment; it's a tax. And let’s talk about how this system is set up to fail. The demographic shift? More retirees, fewer workers. It’s almost fair to compare it to a Ponzi scheme that’s running out of new investors.”

In the end, Lee argues, every dollar one pays into Social Security, only to see it “gobbled up” by the government itself, is a dollar they can’t invest in their own future.

“It’s government dependency at its worst,” he concludes. “Remember, this isn’t just about retirement. It’s about independence, about controlling your own destiny. With Social Security, you control nothing. The government promises you security but gives you dependency. It promises ownership but gives you a tax receipt.”

The Contrary Perspective

Several groups wrote to ThinkAdvisor early Tuesday in response to Lee’s comments, including the National Committee to Preserve Social Security and Medicare.

“Mike Lee's rant on X is a misrepresentation of Social Security's history and how the program works,” the group argued. “Contrary to Senator Lee's claims, Social Security is not a personal retirement fund or a Ponzi scheme. It is social insurance.”

In other words, workers pay into the system in exchange for benefits upon retirement, disability or the death of a family breadwinner.

“Social Security has been working just fine for nearly 90 years and never missed a payment,” the statement continued. “Senator Lee’s propaganda is an effort to undermine public support for Social Security so that Republicans can privatize the program. It is perhaps no coincidence that his second biggest campaign contributor by industry is the securities and investment sector.”

Similar criticism was shared by Social Security Works via its executive director, Alex Lawson, who noted that the thread had been amplified Tuesday by X owner Elon Musk.

“For 89 years, through war and peace, boom time and bust, health and pandemics, Social Security has never missed a single payment,” Lawson wrote. “Compared to the risky alternatives on Wall Street, Social Security is a rock of retirement security. If billionaires like Elon Musk paid into Social Security at the same rate as the rest of us on all of their income, we could expand benefits for everyone and pay them in full forever.”

Lawson likened the argument to a "declaration of war against seniors, people with disabilities, and the American public.”

“We’ve seen this play again and again,” Lawson wrote. “When Republicans destroyed defined benefit pension plans, they claimed that the market would be able to create amazing returns for everybody. Instead, workers got pennies, while Wall Street managers got billions. That is always the plan.”

A Former SSA Official Weighs In

Also among the commentators was Jason Fichtner, the chief economist at the Bipartisan Policy Center and former chief economist for the Social Security Administration, who noted that Social Security indeed faces real and increasingly urgent financial challenges.

“Senator Lee’s recent posts on X raise some important issues surrounding the structure of Social Security and the need for reform,” Fichtner said. “While some statements made are factually correct, some are misleading and lack the proper nuance for the American public to fully understand the financial structure of the program and possible reform options.”

Fichtner suggested that three of the senator’s points require specific rebuttal.

First, by law, surplus Social Security trust fund assets are invested in special-issue Treasury securities, essentially loaning the funds to the federal government. The government uses this money for other expenses but must repay it with interest. This is standard accounting practice and not considered “raiding” in a legal sense.

Second, legislative proposals to change or modify Social Security have been introduced by both Republicans and Democrats in the House and Senate. The website of SSA’s Office of the Chief Actuary provides explanations of the proposals, as well as how those proposals would impact trust fund solvency.

Finally, while Lee is correct that Social Security’s primary funding is from the payroll tax, Fichtner would argue that the public shouldn’t really consider Social Security to be an “investment” in the traditional way one thinks about investing in an individual brokerage accounts.

“Social Security is an insurance program,” he said. “The official name of the retirement program is the Old-Age and Survivors Insurance program. There is also a separate Disability Insurance program. The program provides important income replacement, but it’s an insurance program funded by a payroll tax. It’s not an ‘investment.'”

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