Opinion: Campaign 2012: Cheney and Rove vs. Rick Perry on Social Security

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When Texas Gov. Rick Perry called Social Security a ‘Ponzi scheme’ shortly after declaring his candidacy for president, the onus was on someone credible in the Republican Party to call him on it. Karl Rove and Dick Cheney have now done that. Kinda sorta.

ABC News plans to air an interview with Cheney Wednesday night in which the former vice president expresses his support for Social Security, although he muddies the waters a bit when he links the program to the country’s long-term fiscal woes. When asked about Perry’s description of Social Security as a Ponzi scheme and ‘a great lie,’ Cheney said:


Let’s see what Rick Perry does as he develops through this process. I certainly don’t believe it’s a Ponzi scheme. It’s a program that a great many people depend upon. I think it’s a very important program. We do in fact want to preserve it for future generations. But we’ve got a lot of work to do on Social Security and other entitlements, like Medicare, if we’re going to manage to preserve those programs and at the same time deal with our long-term debt problem.

That Social Security isn’t a Ponzi scheme isn’t just a matter of opinion or belief; it’s a fact. The program is sound enough to pay benefits well beyond the 75-year planning horizon, although in about 25 years they’ll have to be cut by 23% unless more revenue is brought in. Besides, it’s not an investment program that grows or shrinks based on the fortunes of the market; it’s insurance that pays a predefined benefit.

The connection between Social Security and the debt is more nuanced. Because the government collected more in payroll taxes than it paid out in retirement benefits, the Social Security Trust Fund now holds more than $2.4 trillion worth of special Treasury securities. Although the mass retirement of baby boomers will cause payroll tax receipts to fall below Social Security payments, the trust fund’s surplus is large enough to cover the shortfall until 2036, the program’s actuaries estimate.

To redeem the special Treasury notes, however, Congress will have to run a surplus or, more likely, borrow money. Perry’s accusation is based on the assumption that Congress won’t be able or willing to do either, causing the government to default on those securities. If it did, though, the blowback from retirees would be the least of its problems. A default would likely cause interest rates to jump, not just for the feds but for all borrowers dependant on adjustable-rate loans.

Sinking even further into the accounting weeds, the federal ledger already considers the surplus in the Social Security Trust Fund to be a form of debt subject to the statutory debt limit. Borrowing money to redeem those notes won’t increase the government’s total debt; instead, it will increase the amount of money the government owes to the public and decrease the amount borrowed from itself.

Rove criticized Perry’s comments Wednesday morning on ABC’s ‘Good Morning America,’ calling them ‘toxic.’ But Rove’s critique was purely about the political inadvisability of Perry’s remarks, not about their accuracy or lack thereof. In essence, Rove was saying it’s bad politics, not necessarily bad policy, to pick a fight with Social Security.



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Credits: Associated Press photo; Richard Drew Video / ABC News