August 12-16, 2009: AP Reporter Calls Social Security a ‘Ponzi Scheme,’ Misrepresents Social Security Report to Claim Insolvency by 2017

Tom Raum, a reporter and analyst for the Associated Press (AP), calls Social Security “a giant federal Ponzi scheme” destined to “bury… the nation ever deeper in debt.” Raum then writes: “Although calling Social Security a Ponzi scheme—think of the huge frauds that sent billionaires Bernard Madoff (see August 14, 2009) and R. Allen Stanford to prison—may be a bit of a stretch, there is one clear similarity. As in a Ponzi scheme, the concept works fine at first. So long as there are more new ‘investors’ pumping money into the system to pay off the earlier ones, everyone is happy. But at some point not enough new money is coming in and the scheme collapses.” Raum claims that Social Security system trustees have reported that by 2016, money paid out in benefits will exceed the revenues flowing in, and in 2037, the system will be entirely penniless. Thusly, Raum writes, Social Security “is projected to go insolvent in 2017.” [Associated Press, 8/16/2009] (The Raum article is reprinted over several days by different press outlets, but according to progressive media watchdog organization Media Matters, originally appears on August 12.) [Media Matters, 8/12/2009] However, the trustees did not say what Raum claims they said. In their May 12, 2009 report, the trustees said that the Social Security trust fund, not Social Security itself, will be completely depleted in 2037. And after that happens, according to the trustees, revenue from payroll taxes will be sufficient to pay about three-quarters of scheduled Social Security benefits through 2083: “Under the intermediate assumptions, the OASDI cost rate is projected to increase rapidly and first exceed the income rate in 2016, producing cash-flow deficits thereafter. Redemption of trust fund assets will allow continuation of full benefit payments on a timely basis until 2037, when the trust funds are projected to become exhausted. This redemption process will require a flow of cash from the general fund of the Treasury. Pressures on the federal budget will thus emerge well before 2037. Even if a trust fund’s assets are exhausted, however, tax income will continue to flow into the fund. Present tax rates are projected to be sufficient to pay 76 percent of scheduled benefits after trust fund exhaustion in 2037 and 74 percent of scheduled benefits in 2083.” The Associated Press accurately reported on the trustees’ report the same day it was issued. [Administration, 5/12/2009 ; Associated Press, 5/12/2009; Media Matters, 8/12/2009] Stephen Moore of the Wall Street Journal made a similar claim to Raum’s in February (see February 2, 2009).