As Gov. Rick Perry of Texas was assailed by some rivals for the Republican presidential nomination at Monday night’s debate for his misleading claim that Social Security is a Ponzi scheme, he also seemed to be debating himself at times.
Mr. Perry used the debate to talk about the need to shore up Social Security, which politicians on the left and the right agree is needed if the program is to be able to continue paying out full benefits a quarter of a century from now. But in making his case, Mr. Perry both exaggerated the problems facing Social Security and adopted a very different tone than he did in his book “Fed Up” just a year ago, in which he described Social Security as a failure that “we have been forced to accept for more than 70 years now.”
At the debate, Mr. Perry said Social Security had to be fixed so that “our children actually know that there’s going to be a retirement program there for them.”
But in the past, as Mitt Romney, the former Massachusetts governor, correctly pointed out, Mr. Perry has repeatedly suggested that Social Security, which pays benefits to 56 million Americans, is undesirable, and that it may even be unconstitutional.
In “Fed Up” (Little, Brown and Company, 2010), Mr. Perry wrote that “by any measure, Social Security is a failure.” He described it as “a crumbling monument to the failure of the New Deal, in stark contrast to the mythical notion of salvation to which it has wrongly been attached for too long, all at the expense of respect for the Constitution and limited government.” Promoting the book on MSNBC last November, Mr. Perry asked: “Why is the federal government even in the pension program or the health care delivery program? Let the states do it.”
When pressed on those statements by Mr. Romney, Mr. Perry responded: “If what you’re trying to say is back in the ’30s and the ’40s that the federal government made all the right decisions, I disagree with it.” As the audience of Tea Party activists applauded, he continued: “It’s time for us to get back to the Constitution. And a program that’s been there 70 or 80 years, obviously we’re not going to take that program away.”
Mr. Perry countered that Mr. Romney had used tough words for Social Security in his own book, “No Apology.”
“You said if people did it in the private sector it would be called criminal,’’ Mr. Perry told Mr. Romney. “That’s in your book.”
In the section he was apparently referring to, Mr. Romney was criticizing Congress for spending the Social Security surplus on other things. He asks what would happen if a private bank administering a trust fund did the same thing, and answers, “They would go to jail.”
Mr. Perry repeated his description of Social Security as a Ponzi scheme.
“It has been called a Ponzi scheme by many people long before me,” he said.
But while there are some superficial similarities, it is ultimately a misleading exaggeration to describe Social Security as a Ponzi scheme.
Charles Ponzi was a Boston con man who promised investors impossibly high interest rates in the 1920s, and who paid off his early investors by taking money from later investors — a pyramid scheme that can work only if an ever-increasing pool of investors puts in money.
Social Security, by contrast, is a pay-as-you-go retirement system by design. Current workers and employers pay taxes that are used to pay benefits to current retirees. For many years, the program took in more money than it paid out, and invested the surplus — the “Social Security trust fund” — in treasuries. In 2010, Social Security began paying out more in benefits than it received in taxes. As more baby boomers retire, and there is a shortage of new workers, that shortfall is expected to grow.
The nonpartisan Congressional Budget Office estimated last month that the combined Social Security trust funds would be exhausted in 2038. There are a number of steps that could be taken before then to keep the program sustainable, like raising taxes, reducing benefits by raising the retirement age, or reducing cost-of-living increases. But if nothing happens by then, forecasts show that Social Security will not have enough money to pay its promised benefits in full. But the money will not dry up: Even if that happens, the budget office found, tax collections will still be sufficient to pay 81 percent of the promised benefits.
The Social Security Administration issued a briefing paper in 2009 noting the differences between Social Security and a Ponzi scheme. “There is a superficial analogy between pyramid or Ponzi schemes and pay-as-you-go programs in that in both money from later participants goes to pay the benefits of earlier participants,’’ it wrote. “But that is where the similarity ends.”
The paper noted that a program with 40 million people receiving benefits, and 40 million people paying taxes, could be sustained forever. “It does not require a doubling of participants every time a payment is made to a current beneficiary, or a geometric increase in the number of participants,’’ it found.
Mr. Perry spoke approvingly Monday night about how some municipalities in Texas had opted out of Social Security, saying that they got a better deal. But that is for their government employees. It is not clear what his vision of letting states handle retirement programs would mean for private-sector workers.
And opting out is not always a good idea: when the city of Central Falls, R.I., filed for bankruptcy this year, it moved to cut the pensions of its police officers and firefighters by as much as half — and, since they had opted out of Social Security, many have no other income to rely on.
Mr. Perry spoke about the need to fix Social Security for “kids that are my children’s age.” In the past, when he suggested that Social Security might not be there for his children, the Center for Economic and Policy Research, a liberal think tank, wrote him a letter noting that the program is projected to have enough money to pay more than 80 percent of its benefits after 2038 even if its trust funds are exhausted then. “This means, for example, that if your children — currently 28 and 25, respectively — were to retire at age 67 and do as well as you have in their working careers, they would receive $38,145 and $39,410 (in 2011 dollars) each, every year, for the rest of their lives,’’ the letter said. “It is clearly inaccurate to say that this program will not exist for young people.” — MICHAEL COOPER with KITTY BENNETT