One item from the Republican debate that has set tongues wagging is Gov. Rick Perry’s insistence that Social Security is, and always has been, a Ponzi scheme.
Some of the right have taken this as a breath of fresh air. At RedState, Erick Erickson blasts those, like Mitt Romney and his handlers, who say Perry has effectively killed his candidacy:
It’s perfectly reasonable to say we’re scared to death to ever touch the supposed third rail of politics again. It’s even reasonable to say that Rick Perry cannot win by holding to this position. In fact, Perry needed to spend more time focusing on the fact that he does not want to abolish social security as the Democrats and Mitt Romney both claim.
But to suddenly proclaim the conservative position as “social security is a-okay and we just need to make it even better” is complete and total bull crap, not to mention seriously chicken and intellectually dishonest for a bunch of people who’ve more or less held Perry’s position for years to suddenly pretend it’s nuts just because they support another candidate or think the political winds have shifted.
My old colleague Roger Pilon isn’t as colorful, but he, too, is happy that Perry had the guts to slap the Ponzi label on the program’s ample backside:
A private company that ran such a scheme would be prosecuted in less than a New York minute. We should be grateful that a major candidate has finally spoken truth to fiction.
But is Social Security really following Mr. Ponzi’s model — or even Bernie Madoff’s? Technically, no:
…a Ponzi scheme collects money from new investors and uses it to pay previous investors—minus a fee. But Social Security collects money from new investors, uses some of it to pay previous investors, and spends the surplus on programs for politically favored groups—minus the cost of supporting a massive bureaucracy. Over the years, trillions of dollars have been spent on these groups and bureaucrats.
Two, participation in Ponzi schemes is voluntary. Not so with Social Security. The government automatically withholds payroll taxes and “invests” them for you.
Three: When a Ponzi scheme can’t con new investors in sufficient numbers to pay the previous investors, it collapses. But when Social Security runs low on investors—also called poor working stiffs—it raises taxes.
And who was among the biggest raisers of Social Security taxes? Ronald Reagan — on the recommendation of a commission headed by Alan Greenspan. Martin Feldstein offers some insight into that hike and Reagan’s reaction to it:
The Greenspan Commission proposed and Congress enacted a combination of higher payroll taxes and cuts in the benefits of higher income retirees (by subjecting benefits above a relatively high income exclusion to the personal income tax and injecting that extra tax revenue into the Trust Fund). Congress also voted to increase the normal retirement age from 65 to 67, but only after a delay of two decades. But there was no serious consideration of an investment-based solution.
President Reagan was very unhappy with the Commission’s recommendations but was persuaded by political advisers that any proposed general reduction of benefits (through reduced inflation indexing or changes in the benefit formula) would be unsuccessful in the Congress and would be a long-term burden on future Republican candidates. The result was an immediate rise in taxes with the prospect of further tax rate increases in the more distant future.
I recall a meeting in 1982 at which President Reagan asked if there could be some alternative to tax increases or benefit cuts, some more fundamental reform of Social Security that would avoid the ever increasing tax burden that was already projected at that time. We had nothing to recommend.
If the Republican candidates are intent on debating Social Security, that’s a great and welcome thing. But a bit of perspective is necessary. The system wasn’t always seen as a borderline criminal enterprise and even by the likes of Ronald Reagan — though he long advocated “the introduction of ‘voluntary features’ into the system so that ‘those who can make better provisions for themselves’ be allowed to do so.”
If either Mr. Perry or Mr. Romney can pick up that thread, and carry it where Reagan could not, they will do us all a great deal of good.
