A few weeks after calling Social Security a "Ponzi scheme," Rick Perry claims he has just the plan to save the program. That is nothing but a monstrous lie.
In fact, Perry's Social Security plan is a smorgasbord of awful Social Security ideas that conservatives have proposed over the years. It is George W. Bush meets Paul Ryan meets Alan Simpson.
While Perry leaves the specifics fuzzy, broadly speaking, here's what his plan does:
- Privatizes Social Security. Perry would allow workers to divert a portion of their payroll tax contributions into private accounts. But the recent financial crisis has completely discredited privatization. Americans do not want to see their savings gambled in the casinos of Wall Street. If Social Security had been private in 2008, when private pensions and 401(k) plans lost 37 percent of their value, millions more people would have lost their livelihoods than already did. What's more, private accounts are less financially efficient. Social Security has 1 percent overhead costs; the administrative costs 401(k)s are always much higher.
- Slashes benefits for middle-class workers. Perry's plan uses a technical change known as "progressive price indexing" to dramatically reduce benefits for all but the poorest beneficiaries. The details are unclear, but past progressive price indexing proposals, like that of Paul Ryan, cut benefits for all those making more than about $28,000. For example, a 65-year-old worker retiring in 2050 with average pre-retirement earnings ($43,518 in 2011), who is scheduled to receive a $15,156 benefit under current law, would see his benefits reduced $2,577 (17 percent) to $12,579 if price indexing were adopted.
- Raises the retirement age. Increasing the retirement age two years from 67 to 69 would be a 13 percent across-the-board benefit cut at whatever age a person retires. What's the rationale for such a massive cut? Perry claims people are living 14 years longer than they were in 1940. But he fudges the numbers, using gains in life expectancy at birth since 1940, which are larger due to the high rates of infant and child mortality at the time. Life expectancy at age 65 has only increased about 6 years since 1940. And even these gains have been unevenly distributed, with men and women in the lower half of the earnings distribution seeing little or no gains in the past thirty years.
- Allows state employees to opt out of Social Security. Perry holds up the county of Galveston, Texas, which opted out of Social Security in 1981, as a successful model for local retirement management. But the Galveston plan is already a proven failure. It provides smaller benefits than Social Security for all but the highest paid workers; it does not provide guaranteed lifetime benefits, so beneficiaries risk outliving their benefits; it does not automatically provide spouse's and children's benefits; and its benefits are not adjusted for inflation . Luring state employees out of Social Security with false promises will both jeopardize the economic security of millions of Americans, and undermine Social Security for those who retain its coverage.
- Eliminates income taxes on Social Security benefits. This may sound like a nice idea. But income from other pension plans is taxed, so why should Social Security benefits be treated any differently? More to the point, the money has to come from somewhere. Revenue from income taxes paid on Social Security benefits provided 3 percent of the trust fund's income in 2010. These taxes are a fair, progressive way to pay a small part of Social Security's costs. The benefits of lower-income beneficiaries are exempt from the tax altogether, and people in higher income tax brackets pay more into the program.
Worse than Perry's ideas though, are the lengths to which he goes to mischaracterize Social Security in its current form to make his plan more appetizing. Perry hits all of the classic canards:
- There are not enough workers to support today's generation of retirees. Perry repeats the oft-cited myth that because there were 42 workers for every retiree in 1940, but many fewer now, the program is unsustainable. In reality, the reason for the current shortfall has virtually nothing to do with the worker-to-retiree ratio. Social Security, like pension plans of all kinds, had high worker-retiree ratios when it first started. That is because the first generations of retired workers are essentially given credit for prior years of service, despite not having paid into the program for as many years as subsequent generations of workers. But increases in Social Security's tax rate and tax base have offset these startup costs. In addition, as the economy grows and technological innovation increases, fewer workers are needed to generate the same and higher levels of economic productivity. Currently, there are three workers for every beneficiary, and Social Security has a $2.7 trillion surplus.
- The trust fund has been raided. Perry actually treats "protecting the Social Security trust fund" as a provision of his plan. But it cannot really be considered a reform, since it tries to solve a problem that doesn't exist. Contrary to Perry's apparent beliefs, Social Security's $2.7 trillion surplus is invested in United States Treasury bonds, backed by the full faith and credit of the United States government. It has not been "raided." The bonds can only be redeemed to pay for Social Security benefits and associated costs. Taking Social Security's income out of Treasury bonds -- where by definition, they are being borrowed by the government -- as Perry seems to be proposing, would either mean putting them in a riskier investment vehicle, or letting them decline in value due to inflation.
- Social Security has an unfunded liability of $17.9 trillion. This statistic refers to the unfunded liability from 1935 through the "infinite horizon" -- an absurd benchmark. That means from the program's inception out to an unknown date in the distant future -- possibly billions of years from now when the sun has burned out. For the more manageable 75-year horizon that most experts look at, Social Security can be restored to long-range actuarial balance very easily.
Perry has proven unable, or unwilling, to understand
Social Security's basic structure, goals and history. Perhaps that is why his proposals to reform
Social Security are so poor.
Views expressed are those of the author, and do not necessarily reflect the views of Social Security Works or the Strengthen Social Security Campaign.
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1) The current 75 year unfunded obligation is $6.5 trillon in present value.
See Table IV.B5, http://www.ssa.gov/oact/tr/2011/IV_B_LRest.html#276411
(Including the current trust fund assets and future payroll taxes)
2) As the worker-to-retiree link shows, there were 3 workers per retiree in 2009, and that is projected to drop to just above 2 in 2035. (48 per 100) Longer lives after 65, and also less children per couple.
3) Administrative costs on the Vanguard Balanced Index fund are 0.12%, not 1%.
https://personal.vanguard.com/us/funds/snapshot?FundId=0502&FundIntExt=INT
People should understand two political tricks about the privitization debates;
1) The risky, costly, "discredited by market drop"attack never gets around to explain why a voluntary option hurts someone who does not choose to take it.
2) High income people want privitization so they don't have to subsidize low income people in Social Security as much. That is why they calculate higher returns for their own contributions. And that is why advocates for lower income people refuse to let higher income people have that option.
So the "easy" way is to remove the CAP on employer and employee contributions to Social Security but the economic effects of taxing U.S. wages more will be a diversion of high paying jobs overseas, particularly when CEOs will be hit with another 6.2% tax on their upper wages.
Without privatization at least we won't get screwed over by unscrupulous insurance executives, we just need to protect ourselves from unscrupulous politicians like Perry who would renege on the promises made to us all.
Raising the retirement age could help because seniors spend an ever-increasing number of years in retirement, during which taxpayers finance a large fraction of their incomes and medical expenses. Since 1900, male life expectancy at age 20 has risen by 14 years, yet working-life expectancy is currently lower than it was when Theodore Roosevelt was first elected president (http://eng.am/qglaR0).Furthermore, if Social Security payouts were reduced by 5% for new beneficiaries, about 30% of the funding shortfall would be eliminated. Requiring increased contributions from 6.2% to 7.3% from all workers and employees would eliminate Social Security’s projected deficit (http://eng.am/rtUMqX).
For the lower income worker who likely toiled at a physically challenging job each day the increase is even lower. Raising the age is not the answer for social security. Eliminate the cap on earnings for which SS insurance premiums are collected and social security would run a surplus.
For Medicare the solution is not to cut back on benefits. The solution is to fix our medical delivery system so that it does not cost twice as much as the rest of the world's to get half the results.
Keep posting to the HUFF, you input is valuable ! !
Reference: http://www.youtube.com/watch?v=hN-qs4udlkw