Nick Begich, the Alaska Republican running against Congresswoman Mary Peltola (D) in a crucial race for the House of Representatives, compared Social Security to a “Ponzi scheme” on a conservative radio talk show last year.
In a lengthy interview on “The Michael Dukes Show” in July 2023, Dukes, the host, urged Begich to speak out about what the candidate described as Peltola’s pledge not to “touch” Social Security funding.
Begich — the founder of a software company that loaned his last campaign, in 2022, $650,000 — noted that the massive welfare program has a funding gap that will automatically result in a 20% cut in benefits in 2035 unless Congress takes action. Begich argued that Peltola’s alleged aversion to closing that gap is “crazy.”
He then criticized the government for investing the trust fund it uses to make benefits in U.S. Treasury bonds, which offer lower returns on investment than other assets.
If a young person were to ask professional advice about how to invest money, “they wouldn’t tell you to invest in the lowest-yielding securities out there,” Begich said.
The Social Security trust fund is invested in government bonds because they are generally seen as very risk-free. But Begich has another, unfounded theory: that Social Security’s bonds are a way for the government to buy its own debt.
“Because we have these huge deficits, we need somebody to buy up all the debt that we’re producing,” he concluded. “And guess what? It’s you, through your Social Security. That trust fund is invested in government debt from the beginning, and it’s a pyramid scheme, and it’s used to prop up the system.”
Peltola is one of five Democrats in the House of Representatives who former President Donald Trump won in 2020. Her re-election is a key part of the Democrats’ strategy to retake the House, which would require a net gain of just four seats.
Begich received a major boost in August when Alaska Lt. Gov. Nancy Dahlstrom, a MAGA Republican who risked splitting the conservative vote, withdrew from the race.
Alaska has a ranked-choice system, in which candidates are gradually eliminated until someone wins a majority of the vote. That system appears to have helped Peltola in her first race with Begich in 2022, when former Alaska Gov. Sarah Palin, a polarizing right-wing populist, was also on the congressional ballot and also split the conservative vote.
Social Security is a very popular program and Begich’s comments could help Peltola in his efforts to position himself as the more centrist advocate for Alaskans’ interests.
Calling Social Security a pyramid scheme should be a disqualification for a candidate for Congress.Jim Kessler, Third Way
Peltola has not said that Social Security should not be “touched” or changed. She simply opposes cuts to benefits and instead favors “decapping” — that is, eliminating the ceiling on income subject to Social Security taxes — as a way to shore up the program’s finances.
It’s a view shared by many Democrats, who would rather raise incomes than cut benefits. These cuts, they say, are like raising the retirement age, unfair to workers who work physically demanding jobs or don’t live as long as the wealthy.
Peltola said in a statement that her “commitment to protecting and improving the program is clear,” referring to her co-sponsorship of a bill to eliminate the income tax on Social Security benefits.
“It is imperative that we continue to elect leaders who understand and respect the critical role of social security in all of our communities,” she said.
Other Democrats were more explicit in their criticism of Begich’s statements.
“Calling Social Security a pyramid scheme should disqualify a candidate for Congress. Social Security has paid benefits — on time and in full — for 85 years,” said Jim Kessler, executive vice president for policy at Third Way, a centrist Democratic think tank. “And despite all the whining about Social Security’s finances, when the program periodically teetered on the brink of insolvency, Congress always acted to ensure that no one missed a payment.”
Asked about his use of the term “Ponzi scheme,” Begich refused to defend the remark. Instead, he chose to repeat another myth: that the federal government has plundered Social Security trust funds to fund other programs. (In fact, those funds are required by law to be used to pay out Social Security.)
“Too many seniors in Alaska are living from month to month and facing crushing inflation as a direct result of long-term Congressional deficit spending financed by the Federal Reserve printing money,” Begich said in a statement.
“When the federal government treats Social Security like a slush fund — taking money from the Trust Fund to pay for its ever-lengthening wish list — it betrays the trust of tens of millions of Americans who depend on the fund’s ability to support them in their later years.”
The term “Ponzi scheme” — named after a massive scam pulled off by Charles Ponzi in the 1920s — refers to a fraudulent scheme in which a wealth manager pays returns to existing clients using investments made by new clients, rather than based on the value built by the actual investment. Also known as a “pyramid scheme,” the scheme invariably collapses when the scammer runs out of new clients and can no longer deliver the promised returns.
Typically, when Republicans call the program a “Ponzi scheme” — as Sen. Ron Johnson (Wis.), former Trump budget director Mick Mulvaney and former Texas Gov. Rick Perry all have — they’re referring to the program’s funding structure, which relies in part on current tax payments from workers to fund benefits for retirees and disabled workers.
Social Security is not a pyramid scheme — and cannot be — because it is a pension program, not a private investment fund. Pension programs are often funded by the income of current workers, which does not carry the same risks, provided there is proper planning to ensure that the amount of cash in the pension fund is sufficient to provide future benefits.
Begich’s characterization of Social Security’s government bond investments as a mechanism by which one part of the federal government can lend money to another part differs from the use of the term “Ponzi scheme” by other Republicans. But it is no less false.
First, Social Security only has trust funds invested in Treasuries because it ran surpluses from 1983 through 2020, after a combination of benefit cuts and tax increases designed to prolong the program’s solvency before the baby boomers retired. In other words, those surpluses were invested in Treasuries long before U.S. deficits and debts became as large as they are today.
Since 2021, Social Security has spent the surpluses it invested in trust funds—one for the pension program and one for the disability insurance program—to pay scheduled benefits. That’s intentional—a feature of the program’s planning for years when payroll tax revenues wouldn’t be enough to cover benefits.
The combined trust funds are scheduled to run out in 2035, at which point incoming revenues from payroll taxes and benefit taxes will only be enough to cover 83% of planned benefits (although this varies from year to year). That funding gap does need to be addressed, but it does not indicate an inherent flaw in the program.
The solution is obvious, which is why Republicans are so eager to talk about anything other than the facts.Alex Lawson, Social Security Works
Moreover, there is no evidence to support Begich’s original claim that the United States would struggle to finance its national debt without taxpayer investment through Social Security. While some countries are diversifying, the dollar remains the reserve currency of choice for foreign governments and other institutional investors. The government of Japan, a U.S. ally, increased its investment in government bonds, surpassing China as the largest foreign creditor to the U.S. in 2019.
Interest rates on short-, medium- and long-term Treasury bonds are all currently below 5%. As Begich notes, that’s a lower yield than some riskier investments, but it’s also an indication that demand for Treasuries, which are backed by the credit of the U.S. government, remains high.
Advocates who worry about Social Security’s financial stability aren’t necessarily averse to conversations about diversifying how Social Security’s money is invested. But they note that income inequality is a much more significant contributor to Social Security’s funding gap.
Social Security has a taxable maximum of $168,600, meaning that Americans earning more than $168,600 no longer have to pay Social Security taxes after that point. Because of the huge gains in earnings for the small percentage of workers whose salaries exceed that maximum, only about 83% of wages are now taxed to Social Security, compared with 90% of wages in 1983, according to Social Security’s chief actuary.
“If you can solve (the funding gap) by making billionaires pay the same rate as the rest of us, then the solution is clear. That’s why Republicans are so eager to talk about anything other than the facts,” said Alex Lawson, executive director of Social Security Works, a progressive group that supports expanding Social Security.
Begich’s campaign has not been very forthcoming about his preferred Social Security reforms. However, as a former fellow at the anti-tax group Club for Growth, it is unlikely he would support raising taxes to fund the program.
“We must strengthen this fund and ensure it is managed in a way that improves returns and ensures our country delivers on its promises,” Begich said in his statement to HuffPost.
