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Perry Promotes Galveston-Style Social Security Opt-Out

In his flat-tax speech on Tuesday, Gov. Rick Perry also listed five ways to fix Social Security. One of those, as Ben Philpott of KUT News and the Tribune reports, is based on a system Galveston County created after opting out of the federal program.

Retired Galveston County Judge Ray Holbrook at his home in Santa Fe, Texas, on Sept. 12, 2011. A public official for 28 years, Holbrook led the effort to opt out of Social Security in 1981.

In a speech Tuesday in South Carolina, Gov. Rick Perry said it was time to return to the early 1980s: a time when Ronald Regan was in the White House, Michael Jackson was the King of Pop and local governments were given the chance to opt out of the Social Security system.

“And instead allow their employees to pay solely into state or locally run programs," Perry said. "And this has been done around the country and, I might add, with very good results. We ought to allow it again."

Audio: Ben Philpott's story for KUT News

One of those places that Perry has cited is Galveston County, which in 1981 left the Social Security system and formed what’s called the Alternate Plan. It takes similar payroll deductions, but the money is put into a private investment account. Rick Gornto, president of First Financial Benefits in Houston, the company that designed and runs the Alternate Plan, said it guarantees at least a 4 percent return, and that it has given returns as high as 12 percent in boom years.

“In addition, these employees also own their assets in their accounts, and they can leave it to their estates and whatever, and their families, whereas Social Security is a promise to pay, but those benefits can change," Gornto said. "They can be lowered and, in fact, have been lowered."

Critics say the plan has worked well but doesn’t have the same goal as Social Security. The Alternate Plan works better for those making more money. Social Security was created to establish a safety net for poorer Americans, although, Gornto said, the payouts for the poor and disabled compare with those of Social Security.

“For the most part, it provides survivorship benefits for the widows and children," he said. "It provides disability income benefits for people who are disabled. It also provides retirement income at greater levels than people on Social Security."

This local example could also play a role in another part of Perry’s plan to change Social Security: allowing younger workers to pay into a privately run account. Former Galveston County Judge Ray Holbrook, who led the effort to opt out of Social Security, said there are components of the county system that should be changed before it’s employed on a national scale, including the option to take your money and run.

“I took my alternate plan money in 10 years, and of course I’ve been retired for 16 years, so it’s all gone," Holbrook said. "And I think it would be far better if we did the same things Social Security does, which is set everybody up on a lifetime program."

The governor will continue to answer questions on his Social Security overhaul. And he’ll probably continue to use Galveston County as an example of how a change can work and work well.

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