Texas Governor Rick Perry has gotten much press of late for his position that Social Security is a Ponzi scheme. While saying this may benefit him as a 2012 GOP presidential candidate in Republican primaries, many question how this will play later in a general election? Gov. Perry′s statement that, for young people contributing now to the payroll tax, Social Security is a ′horrible lie′, as the grandaddy of entitlement programs will no longer be fully funded after 2026 under existing conditions. At best, only 77% of benefits may be available for those retiring after 2026. So the question of the day is – Is Social Security a Ponzi Scheme, named after Charles Ponzi?

Ponzi scheme social security

Technically, the answer is no on two counts. First, Social Security is more closely related to another financial scheme known as ′Robbing Peter to Pay Paul′, based on pre-Reformation era taxes levied by the Catholic Church. Taking money from one group to pay another group which was promised a return in excess of what they contributed. While a Ponzi scheme is similar, it is not an exact match. The second reason for why Social Security is not a Ponzi scheme is perhaps even more damning, as a Ponzi scheme is purely voluntary. You, as an investor, have a choice of whether or not to participate. With Social Security, you have no choice whatsoever. The federal government forces you to participate.

So Teas Governor Rick Perry, while correct in referring to Social Security as a ′horrible lie′ to newer, younger contributors, he was less accurate in calling the entitlement program a Ponzi scheme. If anything, Social Security is worse than a Ponzi scheme! Based on an investment program by Charles Ponzi in the 1920s, his scheme was voluntary. The federal government forces us to participate in Social Security.