"Social Security brings a new dimension to the field of annuities, insurance, and retirement. There are no long, complicated contracts. No actuarial tables to pore over. Instead, Social Security operates on a very simple principle: the politicians take your money from you and squander it."

"Phasing out Social Security over many years won't work. The first time the stock market dives, the Democrats and the Republicans will use that as an excuse to take over your retirement once again."

"You're told the government has to run your retirement for you because some people are too irresponsible to do so for themselves. But it's wrong to take responsibility for your retirement away from you simply because some other people are irresponsible."

The Truth About Social Security

I know a dandy way you can make a lot of money. Here's the idea: Offer a retirement plan that pays a pension more generous than people can get elsewhere. Every payday each customer will pay you a small portion of his paycheck -- say, 2%. You promise that when he reaches age 62 you'll send him a monthly check equal to what he was making when he retired.

As the money comes in from your first customers, spend it and live a lush life. You really won't need to keep money in reserve for your customers' retirement. When the time comes to pay them, do it with money you receive from new, younger customers. So long as you keep attracting new customers to pay into the plan, you'll be okay.

If you have trouble attracting enough new money to keep your promises, then just change the rules. Either raise the retirement age to 65 or lower the promised benefits. Or raise the amounts deducted from your customers' paychecks -- from 2% to 5% to 10% to 15%, however much you need.

Of course, if you try this the government will shut you down, haul you into court, and send you off to prison.

You'd be operating a Ponzi scheme -- named after Charles Ponzi, who set up a similar plan in Boston in 1920. He promised to pay investors 50% profit on their money in just 45 days. Gullible people poured money into his plan. But he couldn't possibly earn enough on the money to equal the rate of return he promised. So when someone wanted to withdraw his principal and interest, Ponzi simply paid him from money received from new investors.

Eventually he couldn't meet the demands for repayment, and his scheme collapsed. He ended up in jail.

But another such scheme was started in 1935, and this one is still going.

It's called Social Security. It, too, is a Ponzi scheme.

When Social Security was established in 1935, a trust fund was set up -- to keep the money collected in taxes, so it could be returned with interest to each taxpayer when he retired.

But it took politicians only four years to change the rules. Politicians can't be expected to keep their hands off a large sum of money. So in 1939 they transformed Social Security into a "pay as you go" system -- one in which the amounts paid to beneficiaries come from taxes collected from other people the same year.

The Social Security tax you pay isn't put aside as a nest egg for you. It is paid out to others older than you. The money your grandmother receives from Social Security comes from your paycheck. And if you receive anything from Social Security, even if you've been paying into it for 40 years, what you get will be taken from the paychecks of younger people.

Social Security differs from a Ponzi scheme in only two ways:

• The politicians won't arrest themselves.

• The politicians can change the rules whenever necessary to keep the scheme going.

And, in fact, the rules are changed almost yearly. The tax rate is increased about once every three years. The portion of your wages subject to Social Security tax has risen twenty times -- from an original maximum of $3,000 to the current $60,600. And the benefit schedules are changed frequently. Consequently, what was once a $60 annual tax is now as much as $9,271.

But the game is getting tougher. As life expectancy rises, a larger and larger share of the population is retired. That means each person still working has to support more people who are collecting.

This leads to a Social Security crisis every few years. It becomes apparent that current rates of taxation and benefits will lead to insolvency within a few years. To fix this, a bipartisan commission is appointed, taxes are raised, benefits are changed, and Social Security is pronounced completely safe and secure for another 50 years.

But time seems to go by rather quickly in the political world. The 50 years seem to last only a few years -- until it becomes apparent that current rates of taxation and benefits will lead to insolvency within a few years. So another bipartisan commission is appointed, taxes are raised, benefits are changed, and Social Security is again pronounced completely sound and secure for another . . . Well, you get the point.

The tax rate has risen sevenfold since Social Security's founding in 1935. Today your employer must deduct 7.65% from the first $60,600 of your income each year. In addition, he has to match that dollar for dollar. So roughly 15% of the first $60,600 of your employment earnings is lost to Social Security.

Lower Benefits?

Most people think Congress would never renege on its promises to Social Security recipients -- no matter how bad federal finances become.

But when the only alternatives are to raise the Social Security tax rate to 35% or 40% -- or to cut off food stamps to the poor -- there may be no choice but to cut Social Security benefits. The politicians who once were so keen on sharing the wealth will now ask you to share the pain -- at a time in your life when you may not have the option to go back to work and make up the difference.

Or Higher Taxes?

Economists Joel Kotlikoff, Alan Auerbach, and Jagadeesh Gokhale project that rising costs for Social Security, Medicare, government pensions, and interest on the debt will require future generations to pay the government 71% of everything they earn during their lifetimes. The only alternative is for government to renege on many of the promises it has made.

What kind of lives will our grandchildren have if they can keep only 29% of what they earn?

It isn't just rhetoric when someone says we're passing the bills for government spending on to our children -- although we may think our children will pass the bills on to their children.

Each generation may pass the debt on, but it can't pass on the interest. That has to be paid yearly -- and it keeps getting larger. Every generation already is suffering from the government spending of earlier generations, and the bills get larger and larger.

Our parents paid around 35% of their income in taxes. Now the Census Bureau says 47% of the national income goes to federal, state, and local taxes. What will it be for the next generation? 55%? 60%? 71%?

Ignoring the Problem

The politicians refuse to acknowledge any of this -- and so nothing is done to stop the costs from mounting higher. Politicians still cite Social Security as a crowning achievement of the New Deal -- as proof that "government works."

Both Democrats and Republicans use Social Security as a political football -- warning the elderly that their opponents will water down their Social Security or Medicare benefits, while denying any intent to do so themselves. And both are afraid the denials won't be believed.

Public Skepticism

The public knows better. Polls routinely show that about two thirds of the American people don't expect to receive a dime from Social Security.

Even among people who are only 15 years from retirement, two out of five don't expect Social Security to survive until they start drawing their pensions.

The public is right. Social Security is broken, and it soon will collapse.

The Perfect System

But until we know what Social Security should be, there's no basis for reform. If we were starting from scratch, what kind of system would we create?

Obviously, it should be a fully funded system. The money you put in should be saved and invested on your behalf. And what you receive when you retire should be based on what you put in. With this system, your pension wouldn't rely on taking money from future generations.

Actually, a fully funded system already exists. In fact, there are many of them. They are lifetime annuities offered by private insurance companies. You pay into the annuity over the years, the insurance company invests the money for you, and it pays you a lifetime pension when you retire.

When you own an annuity, you have a firm contract with an insurance company. You know how much you have to pay every year -- and, unless you agree otherwise, the amount you pay never changes. You know how much you'll receive when you retire -- and, unless you agree otherwise, the amount you'll receive is guaranteed.

This is the voluntary, contractual, non-political way of providing for "Social Security." When you have an annuity, you don't have to worry that Congress will change the rules.

Many employers already provide pensions for their employees. If there were no Social Security system, competition for the best employees would inspire a great many more to do the same.

What Should We Do?

Private annuities work. They've existed for hundreds of years. Government doesn't work, although it has existed for thousands of years. Political Social Security is a fraud that can never be fixed. It is headed for bankruptcy. The only question is what to do about it.

In looking for a solution, we must face up to one inescapable truth:

Given the current tax rates and the promised benefits, there is no way everyone can get from Social Security what he's been told he will get.

Most of the trillions of dollars paid into Social Security over the past 60 years have been spent. The money can't be retrieved. The promised benefits can be paid only if the Social Security tax is raised sharply. Or the tax can be kept where it is now, but only by reneging on the promised benefits.

So we really have only two choices:

• Keep patching up Social Security, either by raising the Social Security tax until it reaches, say, 70% -- or by reducing benefits steadily until they're the equivalent of about $100 per month. Or . . .

• Act now to stop the problem from growing. Stop promising increased benefits, and get government out of Social Security entirely, so that no one will ever again be cheated by it.

Social Security will always be a tool for politicians to one-up their opponents by promising bigger benefits now and leaving the necessary taxes for their successors to impose. So it will be a chronic problem until we get it out of the hands of the politicians.

And the longer we wait to do this, the more painful it will be when we do.

How to Save Your Retirement, Rather than Social Security

Republican and Democratic politicians keep talking about "saving Social Security." But why should we want to save a bankrupt system that's a bad deal for everyone participating in it?

What we really want is to free you from the 15% Social Security tax, while making sure that no one dependent on Social Security today loses what has been promised.

Because expectations for receiving Social Security benefits are so low, we may be able to solve the problem at a relatively small cost -- if we get the government out now.

Millions of people depend on Social Security today. They worked for decades. Their plans assumed that Social Security would provide some part of their retirement. I believe these people must receive what they were promised. But I don't trust the politicians to do it.

Instead, the government should buy from a private insurance company an annuity for everyone who depends on Social Security. The annuities should provide lifetime incomes similar to what Social Security has promised.

How much will this cost? A mountain of money. The exact size of the mountain is something only the government has the information to calculate. But, based on the amounts now being paid out each year, I estimate the cost to be roughly $5 trillion. This is, in effect, the accumulated deficit of 60 years of "pay as you go."

Because there the government doesn't have enough money to cover all the liabilities, I believe annuities should be provided only for those who truly need them. This means some kind of simple, non-intrusive means test must be applied to each retiree. Those that don't rely on Social Security shouldn't aggravate the problem further. The maximum monthly Social Security benefit is $1,433; there are many retired people to whom that isn't a critical amount.

People over the age of 50 who are nearing retirement and who have made plans based on receiving Social Security should also receive annuities. Those annuities would be smaller and wouldn't begin paying out until age 65.

Of the current retirees and those over 50 who qualify for the annuities, I would hope that a great many would waive the right to an annuity and get along by other means -- although we can't count on that.

In the next section I'll discuss a way to pay for the annuities without providing any additional burden on you and other taxpayers.

And what about those under 50? To them we offer the greatest gift possible: You will never again have to pay the 15% Social Security tax.

You will be able to fund a real retirement for yourself -- putting aside 5%, 10%, 15%, or whatever you want from your pay -- instead of paying 15% to Social Security. By starting before you pass 50, you can easily accumulate the necessary capital to provide a benefit at least as large as Social Security had promised.

What Kind of America?

We need to decide what kind of America we want. Do we want a country that sinks ever more deeply into debt -- in which generations fight with each other over a constantly shrinking pie?

Or do we make the changes necessary now and get America back on track again -- so that people are no longer wards of the state? We can have a country in which our citizens are responsible, self-reliant, and self-respectful.

With regard to Social Security, we have only two choices:

• Get Social Security completely out of the hands of the government -- and do it quickly. Give everyone a fresh start with a guarantee that from now on he'll get what he's promised.

• Leave it all in the politicians' hands -- and put up with periodic crises, higher and higher taxes, and more and more hostility between the generations.

For me the choice is obvious.

Your vote for a Libertarian President will be a statement that the Democrats' and Republicans' puny plans for Social Security aren't good enough. You want the freedom to plan a secure retirement for yourself.