After last night’s GOP presidential debate we now have our first real, significant policy difference among the leading candidates. Yesterday Governor Rick Perry (R-TX) refused to back Social Security in the future, calling the program a “Ponzi scheme.” Former Governor Mitt Romney criticized Perry’s stance, saying the promise of Social Security must be kept. Perry’s stance aligns more the Tea Party base of the Republican Party. Romney is clearly trying to stake ground as more of moderate. Romney also claimed that Perry’s position would make him unelectable in a general election. Polls show Social Security to be a very popular program amongst voters.
For those unfamiliar with the idea of a “Ponzi scheme” it essentially involves a scam in which many individuals lose all their money in what they believe is a legitimate investment. Some also use the phrase “pyramid scheme” to refer to this kind of scam. Perry is presumably arguing that Social Security is a “Ponzi scheme” because some will make money off their investment while others will not. If Social Security went bankrupt and the government refused to pay out benefits then some could lose out on the original investment they made through taxes.
The problem with Perry’s argument is that Social Security is on a fairly sure footing. The program has successfully paid out to all beneficiaries for over 50 years now, hardly reflective of a Ponzi scheme. Social Security faces more problems in the future as the “Baby Boomer” generation retires, but these problems are hardly unsolvable and the government has plenty of time to fix the issues. Social Security is still on track to be solvent through 2037. Even after the Social Security Trust Fund runs out the program will still bring enough taxes to pay off 75% of the promised benefits. In other words, in the worst case scenario beneficiaries receive 75% of their promised payout from Social Security.
However, the worst case scenario is unlikely to actually occur. Social Security is a tremendously popular program and the beneficiaries (those over the age 67) typically vote at a higher rate than the younger population. What this practically means is that politicians have always and will always find a way to pay off the benefits in Social Security. In the 1980’s President Reagan (yes the conservative Reagan that every GOP candidate idolizes) made an agreement with the Democrats in Congress to slightly increase the payroll tax and increase the eligibility age. That deal extended the solvency of Social Security many decades. Another “fix” to the program, such as removing the cap on taxable wages, would extend the solvency of Social Security many more decades beyond 2037.
The promise of Social Security goes beyond the Social Security Trust Fund. It is ultimately a promise backed by the credit worthiness of the United States as a whole, as it is promise made by ourselves to ourselves. Nearly every working American has a significant investment in Social Security, so it is in the interest of the larger population, and therefore the politicians, to see that the investment pays off.