Texas Gov. Rick Perry’s “Ponzi scheme” charge and Florida Sen. Mark Rubio’s assertion that Social Security is unsustainable recycle baseless attacks that go back as far as the 1930s, says Merton C. Bernstein, LLB, a nationally recognized expert on Social Security.
“These are attempts to muster political support by appealing to long-held prejudices to satisfy those who never accepted Social Security,” Bernstein says. “To use them as guides to public policy would undermine our country’s most successful family protection program.”
Bernstein, the Walter D. Coles Professor Emeritus at Washington University in St. Louis School of Law, says that the Perry pitch is ridiculous.
“Ponzi duped investors by pretending that new contributions were wonderful profits,” he says. “Social Security is utterly transparent. It keeps tabs on how its resources match up with expected program outlays and projected economic and demographics developments. Its annual reports keep updating that information.”
Rubio condemns the present provisions of Social Security while ignoring the facts, says Bernstein.
“Rubio darts from ‘I believe in America’s retirement programs’ to declaring Social Security not ‘sustainable,’ ” he says.
“Rubio argues that ‘when Social Security first started, 16 people were at work for each beneficiary,’ while ‘today there are only three for every retiree and soon there will be only two.’”
Bernstein says this is a standard argument for Social Security critics like Fiscal Commission co-chairs Erskine Bowles and Alan Simpson and Gang of Six co-chair Sen. Mark Warner.
“The conclusion that too few people are at work to support too many benefit recipients wilts under examination,” he says.
Bernstein notes that since 1950, an avalanche of technological advances have enabled employees to progressively make more, sell more, bill more, ship and deliver more goods and services more quickly and in new ways.
Recent experience demonstrates the growth potential of a technologically advancing economy. Between 1990 and 2000, non-farm employee hourly output increased by more than 20 percent, manufacturing hourly output expanded by 45 percent and per-hour compensation (after subtracting inflation) grew by 5 percent.
“This growth translates into more dollars flowing into Social Security,” he says.
“Social Security is designed to be self sustaining. As the Social Security trustees reported in 2011, it is fully funded for another quarter of a century. Modest measures that enjoy wide public support would assure Social Security’s funding for an additional 50 years.”
Those measures include raising the cap on earnings subject to FICA (Federal Insurance Contributions Act) or minimally raising FICA rates for both employers and employees.
“Higher wages should mean higher program income,” Bernstein says.
“In recent times, the greater portion of improved income has unexpectedly flowed to those with earnings above the FICA cap — currently $106,800 a year. As a result, FICA revenue has not grown in step with the economy.
“Raising the cap on FICA earnings would come close to canceling the funding shortfall that is projected to begin in about 2037. Or raising FICA rates by one and one-tenth percentage point for both employers and employees also would do that job even better.
“Meanwhile, wages are projected to grow faster than that, boosting average pay.”
Read more of Bernstein’s comments about the recent attacks on Social Security in the Huffington Post at http://www.huffingtonpost.com/merton-bernstein/rubios-factless-social-se_b_950809.html.
“Due to the widespread failure of private retirement plans and the shriveling of private savings plans, Social Security has become more vital than ever to American families, not just seniors,” Bernstein says.