Opinion: Rick Perry’s ‘hard facts’ about Social Security vs. actual facts
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In an opinion piece Monday for USA Today, Texas Gov. Rick Perry tried to pull himself out of the political trench he’d driven into with his inflammatory comments about Social Security. For the first time in recent memory, Perry went on at length about the program without calling it a ‘Ponzi scheme’ or some form of lie. Instead, he said it needed a more solid financial footing -- a point on which policymakers should agree.
But then Perry went off the rails by offering some ‘hard facts’ that were not, you know, factual. Here’s a point-by-point breakdown of the errata:
‘Last year, annual Social Security outlays exceeded annual revenues for the first time since 1983. The Congressional Budget Office projects that outlays will be roughly 5% greater than revenues over the next five years, worsening as more and more Baby Boomers retire.’ This is true only if you define ‘revenues’ as payroll taxes collected. The program has two other significant sources of revenue, however: the interest earned on the reserves in the Social Security Trust Fund, and taxes on benefits paid to recipients who are still pulling down paychecks. From that perspective, Social Security is still in the black, and is projected to remain so until 2022.
Granted, it you believe Congress will default on the Treasury notes in the Social Security Trust Fund, then the interest earned on those notes isn’t worth considering. But then, such a default is unthinkable. Or at least it was before this year.
‘By 2037, retirees will only get roughly 76 cents back for every dollar that is put into Social Security unless reforms are implemented.’ Here, Perry seems to be misinterpreting what the trustees say will happen after the trust fund’s reserves are exhausted, which is projected to happen in 25 years. A full 100 cents of every dollar paid into Social Security in 2037 will go to program recipients. The issue is, that revenue won’t be enough to cover the increase in benefits that the program’s formulas call for between now and then.
Here’s how the trustees put it: ‘After trust fund exhaustion,continuing tax income would be sufficient to pay 77 percent of scheduled benefits in 2036. After trust fund exhaustion, continuing tax income would be sufficient to pay 77 percent of scheduled benefits in 2036 and 74 percent in 2085.’ According to Eric Kingson, a professor at Syracuse University who advised presidential commissions on Social Security in the 1980s and ‘90s, those reduced benefits are still expected to result in payments at least as large for most people as the ones received today, even after adjusting for inflation. They won’t, however, replace as high a percentage of retiree income, Kingson said.
‘Imagine how long a traditional retirement or investment plan could survive if it projected investors would lose 24% of their money?’ Like many critics of Social Security, Perry considers it a savings program. It’s not. It’s an insurance program. And like most other group insurance systems -- health, auto, fire, etc. -- there’s a transfer of assets from people who pay into the system to those who make claims. Over the long run, some people collect more than they paid in payroll taxes. That’s particularly true of those who retired not long after Social Security was established. And some people will collect less.
‘Social Security’s unfunded liability is calculated in the trillions of dollars.’ It’s true that the program is headed toward a point where it won’t be able to pay the full benefits called for by law. And the gap over the long term is big; as the Social Security trustees put it in their latest report, the retirement and disability trust funds have $6.5 trillion in ‘unfunded obligations’ through 2085.
The problem is that the word ‘liabilities’ suggests that taxpayers will be stuck with the shortfall. Politically speaking that may well be the case. But as a matter of law, Social Security pays what it can afford to pay, based on what it’s generating from payroll taxes. If the trust fund dries up and there’s not enough money coming in to cover the benefits promised, the benefits get cut. There’s no automatic dip into the taxpayer’s pocket.
Perry’s comments on Social Security are a mixed blessing. On the plus side, the governor has brought attention to the arcane issue of the program’s actuarial soundness, which increases the pressure on Congress to shore up the program now, not 20 years hence. The longer lawmakers put off fixing the projected shortfall, the larger the cuts in benefits or increases in payroll taxes it will take to close the gap. On the minus side, his mistaken characterizations only make it harder for the public to understand what the real problems are.
-- Jon Healey