A few days ago, I wrote about Rick Perry’s unviable tax plan. In the same policy document (PDF, see page 14), he outlines his beliefs about Social Security. A few months ago, Perry was calling Social Security unconstitutional and a Ponzi scheme, but now he seems to want to preserve it. Rick Perry’s statements about Social Security have moderated, but his proposal remains very far to the right.
Let me start by giving some credit where credit is due: His proposals to reduce the growth of Social Security expenditures are reasonable. First, he advocates slowly raising the full retirement age — given that life expectancy has increased by more than a decade since Social Security was introduced, this step is unavoidable. And as it should, Perry’s proposal takes into account the special needs of those engaged in physical labor such as construction workers.
Second, Perry wants to slow the growth of benefits for upper and middle class Americans through my 2005 idea of progressive indexing (he eschews the word “progressive” in favor of “blended”). This would mean that every future retiree would receive benefits that at least match the purchasing power of benefits today, but the growth of benefits for relatively higher earners will be reduced. To offset this reduction, I have suggested increasing tax credits to match contributions of middle class families to private savings accounts — it is unlikely that Perry would consider such a policy.
While these are reasonable ideas on the benefit side, he undermines the revenue side of Social Security. There are many reasonable ways to increase revenues to Social Security, such as a 2 to 3 % surcharge on wages above today’s cap. However, I would respectfully disagree with those who want to raise that cap from $106,800 to $180,000. That would impose a huge tax increase — 12.4% of up to $73,000 salary — on the upper middle class, with little effect on the truly wealthy.
By contrast, Perry would allow workers to put all their payroll taxes from Social Security to a private account. This diversion would increase the overall US deficit — contrary to his stated goal of reducing the deficit and inconsistent with his balanced budget amendment. The unfunded liability of Social Security currently has a present value of over $5 trillion and the program went negative on a cash flow basis in 2010. Whatever long-term reforms we adopt, we need to continue payments into Social Security so it can continue to pay benefits already accrued by American workers.
In short, despite some good suggestions on benefit reform, Perry’s proposal on the revenue side would hasten the day when Social Security becomes insolvent. We need to fix Social Security, not to bankrupt it.