Perry's Social Security Plan: A "Monstrous Lie"

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.

Click here to read the full post on Huffington Post, or continue reading below.

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 -15 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.

Click here to read the full post on Huffington Post.