Comment

Rick Perry Disagrees with His Own New Book

23
lostlakehiker8/22/2011 10:22:46 am PDT

Social Security is politically hard to reform. Even if you could prove before a jury of disinterested scholars that it was unconstitutional, so what? No court with an ear to public opinion would touch it. Attitudes have hardened.

Keep your government hands off my social security!


A Ponzi scheme is an illegal scheme in which later investors funds are used not to grow some real asset, but rather to fund payouts to earlier investors. Social Security is not a Ponzi scheme because it’s legal.

Being legal doesn’t make it actuarially sound. At current tax rates and benefit schedules, it founders. Assuming a return to the rates in force for decades, up until about four years ago, rates no prior administration from either party wanted reformed, it still founders.

Extending the tax to cover all income from all sources, all the way up, while not modifying benefits, would shore up the program mightily. But last time SS ran surpluses, the government used the excess funds as general revenue. The same thing would happen again, and why not? The extra revenue would be federal income tax in all but name. No old age and survivors insurance program features rules in which increased premium payments yield nothing in the way of increased benefits.

Scaling back benefits, especially for those who have earned at or near the current ceiling for much of their lives, has a certain logic. These people are likely to live maybe four years longer than those whose earnings histories are at the 30th percentile or so. (The gap between 30th percentile and 90th percentile being larger than the gap between 30th percentile and 65th percentile). So they’ll collect more twice, first because the benefit schedule is higher, and second because they get more years of benefits. Since SS taxes haven’t been sufficient to cover the benefits to which the upcoming cohort of retirees is entitled, that generation will be running a ‘profit’ on its ‘investment’. Government mandated profits for the well off are not the fairest way to run things.