Rick Perry: Consistently Wrong on Social Security


Rick Perry: Consistently Wrong on Social Security

(click here for a pdf of this fact sheet with sources)

Republican presidential candidate Gov. Rick Perry’s statements about Social Security have been consistently false or misleading, and completely out of touch with the American people. At best, they reveal a dangerous ignorance about Social Security, a program that has provided essential economic security to America’s working families for the past 76 years. At worst, they telegraph the candidate’s willingness to disregard and distort the facts, and his deep hostility to Social Security. Governor Perry has said:

  • Social Security is a Ponzi scheme. Wrong.
  • The idea that Social Security will be there for today’s young people is a “monstrous lie.” Wrong.
  • We should establish partially privatized retirement accounts. Wrong.
  • Social Security is unconstitutional. Wrong.
  • We need to consider raising the retirement age. Wrong.
  • We need to consider means testing Social Security. Wrong.

Below is an analysis of Perry’s recent statements about Social Security.

SOCIAL SECURITY IS A PONZI SCHEME

Perry: Social Security “is a Ponzi scheme for these young people.” (Iowa Caucus Event at The Vine Coffeehouse, August 27, 2011)

The Truth: Social Security is the opposite of a fraud or a Ponzi scheme. There are several key differences between Social Security and a criminal fraud. First, there is a tremendous amount of transparency, oversight, and advance planning in the Social Security system, compared with the secrecy and deception of a fraudulent enterprise. Social Security’s funds are held in trust and overseen by a Board of Trustees, including two public trustees, who employ about 40 actuaries who make detailed financial projections about the program. The Board reports to Congress annually about the program’s fiscal health. Every annual report, going back to the first report in 1941, is available online. As a result, citizens and the media know exactly how the program is being administered at all times.
 
In addition, income from a fraud is usually not invested in anything, whereas Social Security is invested in U.S. Treasury Bonds, the safest investment on Earth. And while a criminal front suspiciously promises massive returns over a short time horizon, Social Security promises modest rates of return over decades. This makes sense, since the program is a system of universal insurance, not a wealth-maximizing vehicle as fraud schemes purport to be.
 
Likewise, there is the stark difference in reliability. The original Ponzi scheme lasted around 200 days. But Social Security has delivered on its promise to support Americans for 76 years, and will continue to do so if we elect politicians who support it. Social Security is a legitimate and hugely successful social program – indeed more successful and reliable than its private sector counterparts.
 
In fact, Social Security operates the same way as current-funded pension plans: Actuaries determine the cost and the plan sponsor – the United States government—sets the contribution rate. The surplus is invested, but unlike most private pensions, which invest in stocks and bonds, Social Security only invests in United States Treasury bonds, backed by the full faith and credit of the United States. If, in Gov. Romney’s example, a bank trustee, with the knowing consent of the grandparents who set up the trust, bought bonds issued by the bank and carrying fair market interest, every penny of which was repaid with interest when the funds were needed, that would be no fraud at all. The bank would of course spend the proceeds of its bond issuance – that’s why banks, the government and others issue bonds. Investors understand that.

SOCIAL SECURITY WON’T BE THERE FOR TODAY’S YOUNG PEOPLE

Perry: “The idea that [young people] are working and paying into Social Security today, that the current program is going to be there for them, is a lie. It is a monstrous lie on this generation, and we can’t do that to them.” (Iowa Caucus Event at The Vine Coffeehouse, August 27, 2011)

The Truth: Social Security will be there for today’s young people—no matter what. It is there right now providing the only life insurance and disability insurance that most young workers and their families have. It will also be there if they are fortunate to reach old age. Like any program that projects its income and outgo three-quarters of a century into the future, Social Security can sometimes project distant shortfalls, but it can never go bankrupt. Its major source of income is from the contributions of workers and employers; as long as there are workers, Social Security will have income. The truth is that, even if Congress takes no action to close Social Security’s modest funding gap, the program will be able to pay all promised benefits through 2035 and more than three-quarters of promised benefits after that based on workers’ contributions. To guarantee full benefits after that we should require that people with wages of more than $106,800 a year pay Social Security taxes on all of their income—like the rest of us do who make less than that. Ensuring that the next generation will benefit from the promise of Social Security is all about choices. Which would you choose: tax cuts and tax loopholes for the wealthy, or financial security for everybody else?

PERRY SUPPORTS THE CREATION OF PRIVATE ACCOUNTS

Perry: "The best way to prevent Congress from stealing money from the Social Security trust fund is to allow young Americans to contribute a portion of their earnings to an account with their names on it..." (Perry's Cut, Balance, and Grow Plan)

Perry: "The fourth principle is to return to pre-1983 law and allow state and local governments to newly opt out of Social Security and instead allow their employees to pay solely into state or locally run [private] retirement programs. This has been done around the country, with better results. We ought to allow it again." (Cut, Balance and Grow Speech, October 25, 2011)


The Truth: Privatizing Social Security would place all risk on the individual, subjecting benefits to the risks of the stock market. By diverting funds away from Social Security and into private accounts, the proposal undercuts the future financing of the program, effectively ending Social Security as we know it.
 
Private accounts substitute Social Security’s guaranteed benefits with a risky Wall Street gamble. Currently, workers’ benefits are based on pre-retirement earnings; with private accounts, benefits would depend on how lucky workers are with their investments. Retirement income should not be a gamble. Social Security’s conservative financing, together with its conservative investment strategy, as well as its ability to pool risk through the entire population, enables it to provide guaranteed, inflation-adjusted benefits for as long as a retiree or disabled person lives.
 
Social Security, unlike private accounts, is an insurance program, so it is better targeted to insure workers against the loss of income due to unforeseen circumstances. It provides life insurance, disability insurance, and old age annuities which Americans cannot outlive. For unlikely but devastating losses, such as premature death or severe disability, we need insurance, not savings. For unpredictable expenses – how long we will live, and thus, how many years we will need income – savings cannot replace the insurance which Social Security provides.
 
Benefits from private accounts are much less reliable, as they are tied to investment performance, which can fluctuate widely. For instance, IRAs and 401(k) plans lost $2.7 trillion – 32 percent of their value – when the stock market collapsed from 2007 to 2009 And unlike Social Security benefits, income from private accounts is not guaranteed to last the lifetime of a beneficiary, nor is it protected against inflation. Studies have shown that private accounts can produce dramatically different retirement incomes depending on how the stock market is performing at the time workers reach retirement age
 
Moreover, private accounts severely undercut the future financing of Social Security. Because Social Security is primarily current-funded, that is, current contributions are used to pay current benefits, transferring those contributions away from Social Security into personal accounts will make Social Security’s projected shortfall in 25 years much larger. To avoid this, those who have proposed personal retirement accounts – including Romney, President George W. Bush, and Representative Paul Ryan (R-WI) – would make up for the losses through deep benefit cuts – for retirees and people with severe disabilities.
 
Typically proposals to create private accounts do not save enough through deep benefit cuts to pay for the steep transition costs required to maintain promised benefits for current beneficiaries. Instead those proposals deepen the federal budget deficit. For instance, Rep. Paul Ryan’s proposal to divert 2 percentage points of an individual’s payroll tax contributions to private accounts would have resulted in the transfer of $1.2 trillion from the rest of the budget to Social Security between 2037 and 2056 to make up for funding shortfalls on top of deep benefit cuts.
 

SOCIAL SECURITY IS UNCONSTITUTIONAL

Perry: Social Security was created “at the expense of respect for the constitution and limited government.” (Fed Up!, Rick Perry, November 2010)

The Truth: The Supreme Court ruled Social Security constitutional in 1937, and it has not been seriously contested since. In the Court’s 7-2 ruling, in the 1937 case Helvering v. Davis, Chief Justice Benjamin L. Cardozo wrote that Social Security is constitutional, because “Congress may spend money in aid of the ‘general welfare.’”

PERRY WOULD RAISE THE RETIREMENT AGE

Perry: We ought to work to raise the retirement age for younger workers - on a gradual basis - to reflect the longer life-span of today's Americans." (Cut, Balance, Grow Speech, October 25, 2011)

Perry: “We need to decide, are we gonna raise the age of eligibility? What’s the age gonna be that we’re gonna make the transformation from?” (Iowa Caucus Event at The Vine Coffeehouse, August 27, 2011)

The Truth: Not only do we not need to raise the retirement age, we should not. We can close Social Security’s projected long-term funding gap by removing the cap on wages taxed for Social Security.

Governor Perry does not seem to realize that raising the retirement age is bad policy. Raising Social Security’s full retirement age from 67 to 69 amounts to a 13 percent across-the-board benefit cut, no matter what age an eligible worker retires. This would be especially unfair to low-income workers and minorities, who are more likely to work in physically demanding jobs. Finally, raising the retirement age discriminates against the growing number of elderly unemployed, who have a much harder time finding new work after being laid off. Governor Perry is out of touch with the vast majority of Americans who oppose raising the retirement age.
 

PERRY WOULD CONSIDER MEANS TESTING SOCIAL SECURITY

Perry: “Means testing is one of those things that we oughta have a conversation about. Or you know, does Warren Buffet need to get Social Security? Maybe not.” (Iowa Caucus Event at The Vine Coffeehouse, August 27, 2011)

The Truth: Means testing may sound good, but unless it hits the middle class, it would not save the program much money. More than 90 percent of all benefits go to individuals who receive less than $50,000 a year from sources of income other than Social Security. Only 2 percent of benefits go to individuals with earnings over $100,000. Limiting or eliminating benefits for Warren Buffett, as Perry suggests—or any of the relatively small number of people with earnings over $100,000 for that matter—would do little to help the overall solvency of the program, but would greatly harm it.

Social Security is not welfare; it is earned. For the same reason that Warren Buffet is entitled to private life insurance, disability insurance, or an annuity he may have purchased, he is entitled to Social Security, whose benefits are modest but vitally important to all but the handful of millionaires and billionaires among us.

What means testing will do is greatly undermine public support for Social Security by changing it from a universal insurance system to a government welfare program. It would certainly make Social Security more vulnerable to politicians like Perry, who claim it is unconstitutional and recently called it an “injustice” that the poor do not pay higher taxes.

Means testing erodes the traditional American values that Perry claims to represent. It will punish hard work and thrift. If someone has too much in income and assets they would risk losing some or all of their Social Security benefits. Government policy should encourage accumulation of a nest egg, not discourage it.

Finally, means testing would greatly increase administrative costs and undermine the dignity of hard-working Americans. Social Security’s low administrative expenses—less than 1 percent of total benefits paid—would likely double if the program were means tested, since potential beneficiaries would likely have to produce bank account statements, value of assets, tax returns, gifts to children, etc., to show that they are below the government-approved level to receive benefits. Many would consider that distasteful and undermining of dignity since Social Security belongs to those who contribute to it; it is not a welfare program.

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We agree with Gov. Perry that the country would benefit from a “good, thoughtful conversation” about Social Security. Unfortunately, he either lacks the basic understanding of Social Security needed to have such a conversation. Or, in his dislike of nearly all things “federal,” he simply lacks interest in having an honest conversation, based on facts.

Either way, we hope he will change his approach to Social Security. Its future is too important to the well-being of new generations of workers to be shaped by false or misleading arguments.
 

Additional Resources on Perry

VIDEO - American Bridge Takedown of Perry
Los Angeles Times: Why Rick Perry is Wrong About Social Security
Huffington Post: Mitt Romney Campaign Sees Florida Advantage in Rick Perry's Social Security Comments
 


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