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Thursday, September 8, 2011

Fact Checking The Social Security Claims From GOP Debate

Republican presidential candidates former Massachusetts Gov. Mitt Romney, left, and Texas Gov. Rick Perry answer a question during a Republican presidential candidate debate in Simi Valley, Calif. (AP)

Republican presidential candidates former Massachusetts Gov. Mitt Romney, left, and Texas Gov. Rick Perry answer a question during a Republican presidential candidate debate in Simi Valley, Calif. (AP)

One of the biggest moments from Wednesday night’s Republican presidential candidates debate was a comment from Texas Governor Rick Perry about Social Security.

“It is a Ponzi scheme to tell our kids that are 25 or 30 years old today, you’re paying into a program that’s going to be there. Anybody that’s for the status quo with Social Security today is involved with a monstrous lie to our kids, and it’s not right,” Perry said.

The New York Times reported that Perry’s comments were misleading and that “Government projections have Social Security exhausting its reserves by 2037, absent any changes, but show that the payroll tax revenues coming in would cover more than three-quarters of benefits to recipients then.”

Howard Gleckman, resident fellow at the Urban Institute, agrees that Perry’s comments were misleading.

“When Governor Perry said there’s no money there for 25 to 30 years old, he was just wrong. He’s perpetuating a myth,” Gleckman told Here & Now‘s Robin Young.

Guest:

  • Howard Gleckman, resident fellow at the Urban Institute, editor of the blog TaxVox, and author of “Caring for Our Parents,” a book on how we deliver and finance long-term care to seniors and adults with disabilities.

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  • BHA in Vermont

    Rick Perry apparently didn’t pay attention when the market crashed in 2008. Apparently he isn’t paying attention now either. Just as when George W Bush tried to pull this “invest your Social Security on your own” scam, it is a BAD idea. The purpose of SS is to make sure people have at least something to live on in their old age. Putting it in the market is no way to guarantee that income stream. Perhaps GWB and Perry should personally insure everyone’s self managed SS fund. 

  • timothyb

    Your guest failed to address the key factor that makes an investment scheme qualify as a “Ponzi” scheme.

    The defining factor of a Ponzi scheme is that manager can only pay back existing investors if they can get new investors to put money into the system.  The other defining factor is that the manager (in this case the US Government) spent the money existing investors contributed on items outside of the interests of the original investors.  Social Security has both features and should be called a Ponzi scheme.

    The Social Security trustees have stated that after 2033 benefits will be cut by 25%, not even baby boomers will receive the benefits they expect to say nothing of what Gen X or Y will get.  To even get to a 75% funding rate you have to be able to cash in the Treasury debt held by Social Security (the trust fund).  This is debt of the US Treasury and can only be repaid by future tax revenues, so if you have a SS funding deficit and a general budget deficit, these can only be paid for by tax increases, they cannot be funded just by future taxes at current rates, that is the whole problem.

    The Social Security trust fund has no value.  It is the same as writing a check to yourself for $20 billion and then telling people you have $20 billion, the real value of the claim is your future income, not the check you wrote.

    • KCAce

      In other words, timothyb, Congress would have to say that the Treasuries in which Social Security invested are worthless.  

      • timothyb

        Well, they are non-marketable, so Social Security is legally prohibited from selling them.  They are a promise from the US Federal Government to pay itself $X billion, the tax receipts were spent on something else, not saved as a future source of funds. 

        Ponzi scheme doesn’t mean that existing investors don’t get paid back, in fact in a lot of cases (Madoff for example) you can get new investors (younger tax payers) to pay into the scheme for decades and the original investors will be paid as scheduled.

        The real issue is that to make these payments tax rates on Gen X and Gen Y will have to go up by a very large number because the baby boom generation and the politicians they elected for decades refused to deal with Social Security in an honest way before the funding issue became severe.

        • J Frog

          Yeah, cause if they sold them to someone they would have to pay THAT person back…AND still pay the Social Security beneficiary when his checks were due.  It’s just an IOU.

    • Shrdlu42

      Two “slight” problems with your argument:

      1) Your “definition” covers just about every insurance program ever devised.

      2) The same people and philosophy that did so much to create our current situation are being offered as the “solution”.  Sorry, I have no trust in the treasonous snake oil salesman from Texas.  Let him secede from this country so we may be well rid of him!

      • timothyb

        1.) Private insurers keep massive portfolios to pay future claims, not 100% funding, but no private insurer would ever try to convince regulators that its own obligations should be counted as assets.

        2.) not an argument just personal attacks that don’t engage the issue.  You can’t talk about a solution until you acknowledge the problem, Perry has accurately described the problem.

  • J Frog

    So “if we don’t do something” everyone will eventually be getting 75 cents on their Social Security dollar?  But if we “do something”…..like pay more now or take less later (i.e. start taking benefits at like 68) I can get the whole check I was promised?  I’m not real good at math but it sounds like still getting only getting 75 cents on the dollar I was promised.

  • Taxwarrior

    So SS is solvent to 2037 but that doesn’t include last year’s payroll tax holiday, and the new payroll tax holiday proposed last night.  SS will be insolvent by 2030 max (check the math from the 2011 SS Administrators Report) .  So if Perry says 25 year old folks are not going to get what they are being told today will be available when they retire how is he wrong.  If I’m 25 today SS will be technically insolvent by the time I’m in my early 40′s.  What’s it going to look like by the time I’m 65.

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