What if there was a financial scheme that took the money of younger working people and gave it to older richer people year after year?
What if that scheme relied heavily on a misconception that the money collected was being set aside for the contributor to get back at a later time?
And what if despite the fact that the law required every wage earner and employer to pay into this scheme, it still was running out of funds and spiraling toward disaster?
Actually, there's no need for "what ifs" because that scenario is actually happening, and has been happening for more than 80 years. It's called Social Security and it's way past time to end this scam if we want to keep the American dream alive.
The latest evidence came this week when the Social Security trustees released their annual report to the public. The report projects that the so-called Social Security trust fund will be tapped out by 2034, and at that point Social Security beneficiaries would have to start taking 77 cents on the dollar for their promised benefits. In other words, if you're a wage-earning worker 48 years old or younger, say goodbye forever to a good part of that paycheck withholding money.
It's not like any of this should come as shock to most of the people who will be affected. Gallup's polls of Americans aged 49 and younger have consistently shown that a majority of those Americans do not believe they will get Social Security benefits when they reach retirement age.
Here's how I describe what's going on: Theft.
We know the reasons Social Security is in trouble. First off, there are a lot more elderly people in America eligible for the benefit than ever before. And there just aren't as many younger workers paying into the system to cover them.
We also have the problem that the Social Security trust fund is not really the kind of trust fund most people think of. Every year, the additional money left over from Social Security taxes after current beneficiaries are paid out is loaned to the U.S. Treasury in the form of special issue treasury bonds. These are not worthless IOU's, but this set up is also far from some kind of lock box where Social Security tax money is kept safe from future rainy days.
That lock box idea was something then-presidential candidate Al Gore famously promised in 2000 and was a phrase he repeated time after time in his first debate with George W. Bush. In fact, Gore said "lock box" so many times in that debate Saturday Night Live parodied him for it mercilessly in a memorable sketch.
But the idea that our Social Security money wasn't already in some kind of lock box came as a surprise to many voters at the time and probably is still not clear to many voters and workers. That's where the theft and fraud concepts come in. Social Security is running out of money because it was never set up as some kind of safekeeping system for the people paying into it, even though that's how President Franklin D. Roosevelt sold it to the American people.
As author and pollster Scott Rasmussen explains in his 2012 book, "The People's Money":
Americans did not want Social Security to be another form of welfare or government giveaway. Roosevelt sold the plan as an insurance program, and that's how people perceived it from the very beginning.
But Social Security is simply not operating anything like an insurance program when all the people paying into it are doing is covering the costs of the current beneficiaries. None of us have some kind of dedicated Social Security account where all the money resides that we and our employers have paid into the program. It's mostly a fiction. And a lot of people would call that fraud.
Whether you call Social Security theft, fraud, a Ponzi scheme, or just a case of misleading politics, the real question now is: Why are we continuing to do it?
If the answer is because most Americans still want to help the elderly get by, that's a nice sentiment but it's misplaced. Older Americans aren't just doing okay. The latest extensive study of age-based wealth in the U.S. shows that a typical household headed by an adult 65 and older has 47 times the net worth of a household headed by younger Americans. Yep, Papa and Granny are loaded.
Now, helping older people who happen to be poor or on the margins of poverty is something different. But the cultural assumption many of us have about elderly folks needing more financial help in America is pretty much the opposite of the truth.
And Social Security is one of those things that's currently siphoning income from younger workers and giving it to older Americans who statistically need the money a lot less than the people providing it to them. That makes Social Security a bad case of Robin Hood in reverse.
Forget "Occupy Wall Street." The financial protest movement that would really make sense for younger people is a demand to freeze the Social Security tax program or at least start to phase it out over time.
Instead, the opposite has happened. Social Security taxes have actually gone up. For years, the cap on Social Security taxable wages was $110,000 per year. But in 2016 it went up to $118,500 and this year it grew to $127,200. This constitutes a massive tax hike to benefit a wealthier segment of the population at the expense of a poorer one.
You know how Democrats are always yelling about big tax cuts for rich? Well, how about a word of protest about the Social Security tax plan? Talk about income inequality and wealth gaps. Well, this is how they're made.
Shrinking and eventually ending this withholding set up would be a big boost to the economy overall as the younger workers who earn the money would now keep more of it to buy homes, cars, and afford having kids someday.
If you are an older worker who paid into Social Security your entire working life it's certainly not "fair" to reduce those benefits. And net worth-based qualifications to keep receiving benefits may seem harsh. But it's less fair to force younger people who have less net worth and more expenses to lose virtually all of the money they are paying into this misleading scheme.
Someone is going to get fleeced here, either way. But phasing out Social Security taxes over time and giving workers the option to continue investing that money tax free in retirement accounts like a 401(k) or simply pocketing that cash is fairer for everyone.
We can argue about all kinds of reforms and changes to prop this program up. But let's just stop taking younger workers' money now. Far from being an economic calamity, putting an end to a scheme that takes money out of the hands of productive workers might actually spur a boom.
Commentary by Jake Novak, CNBC.com senior columnist. Follow him on Twitter @jakejakeny.
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