Did Texas Gov. Rick Perry Ruin the Social Security Issue for Everyone?

Is There Such a Thing as a "Three Edged Sword?"

In the Republican debate Wednesday night Texas Gov. Rick Perry reiterated his view that Social Security is a Ponzi scheme, and implied that government pensions might be better dealt with at the state level.  This has given former Massachusetts Governor Mitt Romney an opening, or so he thinks to charge Mr. Perry with an unacceptable view of Social Security.



John Q. Has a Questoin Mr. Perry



Here’s the Problem with Social Security.  The statutory benefits are not linked actuarially to the revenue stream.  As a result, sometime in the next 25 to 30 years the current balance in the Social Security Trust Fund is expected to go to zero, and the revenues from the payroll tax that supports the Trust Fund are not expected to be sufficient to pay mandated benefits.  This will not mean the bankruptcy of the system, as many politicians point out, but it will mean one of the following will have to take place.



This Looks a Lot More Appetizing
than that Social Security menu



1. Benefits will be cut by 20-25% to match income revenues.

2. The benefits shortfall will be made up by injection of general revenues into the system.

3. The Social Security Trust Fund will borrow money to maintain statutory benefit payments.

4. The retirement age will be extended.

5. The payroll tax will be increased, or the current limits on payroll taxes that support Social Security will be lifted.

6. Benefits will be means tested and high net worth, high income retirees will get little or not benefits.

7. The system will become private accounts, like 401k accounts and benefits will be based on the return on investments in those accounts.

Any combination of these alternatives is economically sound, but no combination is politically viable.  So politicians want to avoid the entire subject, speaking only in generalities, putting off any charge choices until someone else has to make them.

With Mitt Romney and the press making an issue out of Gov. Perry’s attack on Social Security, the pressure is placed on Mr. Perry to come up with his solution.  He is not ready to do that, since there is no good choice from the menu above.

“Asked how the system should be changed, Mr. Miner noted that Mr. Perry had been in the presidential contest for only three weeks. But he promised that the governor would keep talking about the need to revamp the system to make if financially sound.”

meaning that Mr. Perry has no idea what to do.  Meanwhile here is Mr. Romney’s take on the issue from his 160 page, 59 proposal paper on the economy.

“First, we must keep the promises made to our current retirees: their Social Security and Medicare benefits should not be affected. But second, we should ensure that the promises that we make to younger generations are promises we can keep.

With respect to Social Security, there are a number of options that can be pursued to keep the system solvent—from raising the eligibility age to changing the way benefits are indexed to inflation for high-income retirees. One option that should not be on the table is raising the payroll tax or expanding the base of income to which the tax is applied.”

That's it, that's all of it.  So Mr. Romney knows the menu, he just doesn’t want to make a selection because he has no idea of what to do either..  But by bringing up Mr. Perry’s position on Social Security sooner or later Mr. Romney will be asked to pick an option.  He may not have thought through his attacks on Mr. Perry.



Sorry, We Need a
Three Edged One



As far as Mr. Obama is concerned, he too would rather see the issue not come up.  But if the issue becomes a part of the Republican campaign for the nomination, it will also be part of the general election.  So sooner or later Mr. Obama will be asked to pick an option.

 The net result, lose – lose – lose, a three edged sword for Mr. Perry, Mr. Romney and Mr. Obama.  All of them will want it to go away.