A shareholder once asked Warren Buffett, Charlie Munger if Social Security is a 'government-sponsored Ponzi scheme for retirees' — their answer was received with laughter and applause

Buffett first clarified the true nature of Social Security.

He explained that, while it was proposed as insurance because that was “the only way [President Franklin] Roosevelt could get it passed,” Social Security is essentially a “transfer payment by the people who are in their productive years to the people who are past their productive years.”

And Buffett liked that mechanism.

“I think that the obligation for the people who do well in this society is to provide a reasonable level of sustenance for those beyond their productive years,” he said.

‘One of the most successful things the government has ever done’

Buffett’s right-hand man, the late Charlie Munger, was an even bigger supporter of Social Security.

Despite being a self-described “right-wing Republican,” Munger strongly defended the program. During that 2005 shareholder meeting, he said that he felt more strongly than Buffett that the Republicans who were challenging Social Security were “out of their minds.”

His remarks were met with laughter and applause from the audience.

Munger was generous with his praise for the program.

“Social Security is a very capitalistic institution with profoundly good effects,” he noted. “It’s one of the most successful things the government has ever done in terms of efficiency and good effects.”

Buffett's prescription for Social Security

Buffett also shared with the audience what he would do if he were at the helm of the Social Security program.

He took issue with the Social Security wage base, which is the maximum amount of earnings that are subject to the Social Security payroll tax in a given year. In 2005, the amount was pegged at $90,000.

“Right now we quit taxing for Social Security at $90,000. But — and that means that everybody in my office is paying — or most of them — are paying 12.4 — 12.2 or 12.4 percent, counting what the company contributes, toward this,” he said.

Buffett pointed out that because this payroll tax ceased to exist at earnings over $90,000, higher-income individuals, including himself, pay a lower proportion of their total income towards Social Security. He criticized this as “sort of nonsense in this society.”