Heck Dancing On The Third Rail

Joe HeckRep. Joe Heck (R-TeaParty Darling) appears to be dancing as fast as he can, perhaps to the memorable Fred Ebb lyrics of “Razzle Dazzle,” (Chicago):

Give ’em the old razzle dazzle
Razzle Dazzle ’em
Give ’em an act with lots of flash in it
And the reaction will be passionate
Give ’em the old hocus pocus
Bead and feather ’em
How can they see with sequins in their eyes?

Representative Heck was once wont to flash the old “Social Security is a Pyramid Scheme” line [Politico June 2011] only to tap dance in the other direction tweeting to Jon Ralston, “Those who have followed my position know that I am fully committed to protecting the promise of Social Security.” [link]  The old Razzle Dazzle is altogether more difficult in an age of video-tape, audio recordings, and on-line news clips.

Razzle Dazzle: “Those who have followed my position…”  Those who have attempted to follow the Representative’s position may very well be those who have standing appointments with their chiropractor.

Flash: “I am fully committed to protecting the promise…” Note the carefully selected word “promise,” not necessarily the Social Security program as currently configured.  The promise of Social Security is simply that there will be a safety net income insurance program in place to prevent elders from falling into abject poverty.

Hocus Pocus:   First, let’s drop the first batch of sequins from the eye mask — the Social Security program, is NOT a pyramid scheme.  This is a Pyramid Scheme:

“As its name indicates, the pyramid scheme is structured like a pyramid. It starts with one person – the initial recruiter – who is on top, at the apex of the pyramid. This person recruits a second person, who is required to “invest” $100 which is paid to the initial recruiter. In order to make his or her money back, the new recruit must recruit more people under him or her, each of whom will also have to invest $100. If the recruit gets 10 more people to invest, this person will make $900 with just a $100 investment.”

“The fraud lies in the fact that it is impossible for the cycle to sustain itself, so people will lose their money somewhere down the line. Those who are most vulnerable are those towards the bottom of the pyramid, where it becomes impossible to recruit the number of people required to pay off the previous layer of recruiters. This kind of fraud is illegal in the Unites States and most countries throughout the world. It is estimated that 90% of people who get involved in a pyramid scheme will lose their money.” [Investopedia]

These scams show up in e-mail chains, old fashioned chain letters, and in acquaintance or affiliation frauds.   There really is no comparison between the illegal pyramid scams and an income insurance program like Social Security. To conflate the two is simply to admit ignorance of both.

The charge that Social Security is a Ponzi Scheme, a variation on a pyramid scam, is to conflate assured income with investment.

In a Ponzi Scheme investors are lured into investing in a scheme without being assured of how the returns on the investment plan will be generated.  The most common structure is that the “returns” are merely taken from more recent investors.  Ah ha! The detractors now claim that Social Security must be a Ponzi Scheme because older workers are receiving benefits paid for by younger ones.   No. All that’s required to dismiss this bit of Hocus Pocus is to understand what a Ponzi Scheme does, and why they all tend to fail rather rapidly.  No, Social Security is NOT like a Ponzi Scheme.   Kevin Drum explained this rather neatly in September, 2011.

Without the Hocus Pocus:  Social Security is supported by taxes.  The taxes (payroll taxes) are collected — the Social Security beneficiaries are paid, and the trick is to balance the revenues from the taxes with the benefits paid out.  To conflate an investment plan with a subsidized social safety net program is to misunderstand both.

Hocus Pocus, Shezzadaaaa — It’s out of balance! It’s Going Broke! There will be Nothing, Nothing I Say, for our Grandchildren…. Not so fast.

“The good news is that the Social Security trust fund is going to have a surplus until the year 2033, give or take, at which point there will still be enough money to pay 75 percent of promised benefits, according to the latest trustees’ report, an annual opportunity for the financial press and haters of our major social benefit programs to do the Panic Dance. Meanwhile, Medicare’s trust fund is going to have a surplus until the year 2024, more or less, at which point there will still be enough money to pay out 87 percent of benefits.” [HuffPo]

There is no reason for the Razzle Dazzle or the Hocus Pocus — let the sequins scatter to the floor — Social Security is not broke, it’s not a pyramid scheme, not a Ponzi Scam, and there’s no reason for the Panic Dance.

If we want to make the program more secure, there’s a reasonably simple way to do it.  Heck opponent, Erin Bilbray, nails it [Sebelius] — simply increase the current cap on Social Security tax collections.

Employees — the Social Security tax rate is 6.2 percent on income under $113,700 through the end of 2013. The Medicare tax rate is 1.45 percent of all income;   Employers — the Social Security tax rate is 6.2 percent. The Medicare tax rate is 1.45 percent; and  Self-employed —the Social Security tax rate is 12.4 percent on income under $113,700 through the end of 2013. The Medicare tax rate is 2.9 percent.  [SSA]

Translation: Every dollar earned over $113,700 is Social Security Tax Free.  The individual earning $113,700 annually is paying the same Social Security taxes as the person earning $1,137,000 or $11,370,000.  Want more revenue? Raise the cap.   Or, as candidate Bilbray explains:

“I will not support any plan to privatize Social Security and Medicare. I believe we cannot fix our fiscal problems on the backs of our retirees. Congress needs to address the deficit and spending by eliminating corporate tax loopholes, cutting spending, cracking down on waste and fraud, and tightening our belts. It is not right to ask Americans who have paid into a system their entire lives to sacrifice before Congress takes these issues seriously.”  [Bilbray]

No hocus pocus on Social Security there, no dancing on the Third Rail.

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