Saturday, September 17, 2011

Michael Does The Numbers

Gov. Rick Perry, one of the leading contenders for the 2012 GOP presidential nomination, has made some pretty outrageous claims about Social Security. It's a Ponzi scheme (no, if you want the correct term, it's more like a tontine and perfectly legal). It's unconstitutional (no, the US Supreme Court determined that it was not when the program was challenged shortly after its inception). Those two were easy to knock down

His third claim is that the federal government should not be involved in such a program, that the issue is more properly a matter for the states. In support of this claim, he points to the successful retirement program in Galveston, Texas for public employees. It is this last claim that Los Angeles Times columnist Michael Hiltzig examined in his latest column. Once again, Michael does the numbers for us. His conclusion is that Perry's claim is nonsense.

The Galveston program is basically a 401(k)-style defined contribution plan. You get out of it what you put in, along with the employer's match and investment gains on the total.

That means the greatest benefits flow to the best-paid employees, such as the county managers who established the plan. Social Security, by contrast, steers proportionately larger benefits to moderate- and low-paid workers. ...

If the employee makes $75,000 a year every year of his/her employment (and how many people do?), the plan works, at least for a while if the stock market doesn't go south. But there are still some catches to this program.

Moreover, Gornto's projected payout lasts only 20 years. After that, the worker receives nothing. Social Security, by contrast, pays for life. ...

Unlike Social Security recipients, Galveston retirees don't have inflation protection. (Inflation has been quiescent over the last few years, so there haven't been cost-of-living increases for Social Security lately, but plainly that's not a permanent condition.)

It is not all that unusual for Americans to live beyond the age of 85. What happens then? Are the shiftless dead beat elders thrust out into the streets to fend for themselves? And, presuming the economy does pick up at least a little steam, we can expect some rise in inflation. Even now prices for fuel and food are rising, which means it is possible Social Security recipients will get a COLA raise within a year or two. Retirees in the Galveston program will not.

These are just two of the issues which Hiltzig raises and dispenses with by actually using a calculator to check the numbers. The whole column is worth a close reading because it shows just how dishonest Perry's claims are and just how the retirees in the Galveston plan got ripped off.

Most of the candidates are in California this weekend for the state Republican convention. If any of them read the Los Angeles Times, they might find some pretty good ammunition to use against Gov. Perry in the future. The rest of us will have the same ammunition.

Nicely done, Michael. And thank you.

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Blogger PurpleGirl said...

I know all the reasons why they say inflation is low to non-existent. But food and fuel isn't included in the calculation. And therefore, I don't give credence to that idea. When I go to the store I find bacon costs more and the can of coffee is smaller (the price might not have changed but I'm getting less), and one yarn company is making skeins smaller.

6:49 AM  
Blogger Diane said...

No, food and fuel aren't included, but the rise in both will affect those factors which are included.

It still would be nice, however, if the powers that be would recognize that a rise in those two factors deeply affect the elders on Social Security, perhaps more than any other factors.

8:23 AM  
Blogger ifthethunderdontgetya™³²®© said...

I'm happy to see that Jonah Loadpants' employer still has actual journalists on their staff.

9:37 AM  

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