Appearing on CNN’s Parker/Spitzer this past week, occasionally secessionist Texas Gov. Rick Perry (R) proposed allowing states to opt-out of Social Security:
“Here’s what I think would be a very wise thing,” he began. “In 1981, Matagorda, Brazoria, and Galveston Counties all opted out of the Social Security program for their employees. Today, their program is very, very well-funded and there is no question about whether it’s going to be funded in the out years. It’s there. That’s an option out there.”Watch it: (NEED TO CLICK THE HEADER TO GO TO ARTICLE ON THINKPROGRESS TO SEE THE VIDEO)
“So, you want to let people opt out?” responded Spitzer.
“I think, let the states decide if that’s what’s best for their cities,” Perry replied.
“So the states will let people opt out of Social Security?” Spitzer asked
“They should,” the recently reelected Texas governor said.
Perry should learn a little history before he raises up the 1981 experiment as a model for Social Security reform. In that experiment, three Texas counties “decided to opt out of Social Security and instead to provide their public employees with a system of privatized accounts.” But this system left participants worse off than they would have been under Social Security.
Moreover, Perry’s proposal closely resembles Alaska GOP Senate candidate Joe “A Noun, a Verb and Unconstitutional” Miller’s economically impossible plan for a state takeover of Social Security and Medicare. A workable plan to allow states to opt out of Social Security would require draconian provisions, such as a mandate that everyone must retire in the same state that they worked and paid taxes in. Otherwise, workers who are too young to receive Social Security benefits would move to an opt-out state to avoid paying Social Security taxes — and then promptly move to a state with Social Security benefits the moment they became eligible. Eventually, the entire system would collapse under the weight of too many Social Security beneficiaries who had not paid into the system.
And this isn’t even the first time this week that Perry released a completely unworkable idea whose only virtue is that it will poll well with the Tea Party. Earlier this week, Perry released excerpts from his forthcoming book that attack the Constitution for allowing a national income tax and for requiring senators to be chosen through a radical process known as an “election.”
The Texas Privatization Plan 27APR05
http://thinkprogress.org/index.php?p=728
In his Social Security roundtable yesterday, President Bush stated, “If you’ve got a good idea, bring it forward. I don’t care if it’s a Republican idea, or a Democrat idea, independent idea, Texas idea, any kind of idea, bring it forward.” Well, it seems that Sen. Barbara Boxer (D-CA) took the president up on the “Texas idea” suggestion. The senator’s office has released a report looking at the 1981 Texas plan. In 1981, three Texas counties “decided to opt out of Social Security and instead to provide their public employees with a system of privatized accounts.” The analysis done by Boxer’s office and the nonpartisan Congressional Research Service “compares two sets of families in three different income brackets [and] shows what happens to their retirement in 2005 under Social Security and under the Texas plan.” The conclusion:
By examining the actual system in place in Texas, this study shows that Americans are worse off with privatized accounts — not in theory, but in reality.HERE IS THE LINK TO THE GAO REPORT FROM 1999 ON THE TEXAS EXPERIMENT, NOTE THE REPORT WAS DONE BEFORE THE FINANCIAL MELTDOWN OF 2008
http://www.gao.gov/archive/1999/he99031.pdf
AND FROM WIKIPEDIA
Claim that it gives a low rate of return
http://en.wikipedia.org/wiki/Social_Security_%28United_States%29
Critics of Social Security [120] claim that it gives a low rate of return, compared to what is obtained through private retirement accounts. For example, critics point out [120] that under the Social Security laws as they existed at that time, several thousand employees of Galveston County, Texas were allowed to opt out of the Social Security program in the early 1980s, and have their money placed in a private retirement plan instead. While employees who earned $50,000 per year would have collected $1,302 per month in Social Security benefits, the private plan paid them $6,843 per month. While employees who earned $20,000 per year would have collected $775 per month in Social Security benefits, the private plan paid them $2,740 per month, at interest rates prevailing in 1996.[120] While some advocates of privatization of Social Security point to the Galveston pension plan as a model for Social Security reform, critics point to a GAO report to the House Ways and Means Committee, which indicates that, for low and middle income employees, particularly those with shorter work histories, the outcome may be less favorable. The use of anecdotal returns from one investment or another can also be misleading. Indeed, the substantial risk from relying on private investment instruments was highlighted with the massive losses suffered to both private and public pension plans in the economic collapse beginning in 2007.However, a more fundamental flaw in this criticism is the fact that Social Security is not analogous to a retirement investment plan because it is an insurance program, not an investment account. Social Security benefits can exceed market returns of retirement investments under some circumstances, because as an insurance program it pays benefits not only for retirement, but for disability, as well as paying survivors and dependents (see FICA above), and this coverage begins shortly after a worker starts contributing. It can also be argued that part of Social Security's "return" is not only benefits actually paid, but the coverage against risk a worker and their family has in the event of loss of income from retirement, disability and death, even if disability and death occur at a relatively young age. It is, however, legitimate to compare the return on the "risk pool of funds" garnered by this government-run insurance program with the return on the "risk pool of funds" garnered by a for-profit commercial insurance company. Commercial insurance companies must be able to cover substantially the same types of extra payouts, particularly where the beneficiary lives longer than expected, but they do not have the taxing power or relatively unlimited borrowing power of the government, and so the insurance companies must be capable of earning better returns on the pooled monies than has the government done historically.
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