Social Security sellout

More support for "It's the Secure Retirement, Stupid! " meme.

Social Security sellout
By Peter Ferrara
(from March 9, 2005 Washington Times):

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Only this White House staff would send the president out to sell personal accounts for Social Security with the message they don't really solve the problem. Is it any wonder then that the more George W. Bush talks about personal accounts the lower they sink in the polls?

Of course, this message is totally wrong. The chief actuary of Social Security has already scored four proposals for personal accounts alone, with no benefit cuts or tax increases, as achieving permanent solvency for Social Security. But the White House staff doesn't understand them, or how personal accounts can eliminate long-term Social Security deficit.

The bill proposed by Rep. Paul Ryan, Wisconsin Republican, and Sen. John Sununu, New Hampshire Republican, is a good example of how this works. The bill would allow workers on average to shift about 6.4 percentage points of the 12.4 percent Social Security tax to the personal accounts. To the extent a worker exercises this option over his career, the account would then substitute for a proportionate share of his future Social Security retirement benefits.

The official score of the Social Security chief actuary shows these accounts would reduce currently projected Social Security expenditures for retirement benefits 40 percent by 2040, 67 percent by 2050, 80 percent by 2056, and ultimately by 95 percent. Workers would then get much higher benefits through their personal accounts, because of the much higher returns in the private capital markets than Social Security promises, let alone what it can pay.

Yet, with almost half the Social Security payroll tax still going into the old system, but retirement benefit expenditures cut 67 percent, 80 percent and ultimately 95 percent, Social Security is left in permanent surplus. This is not a matter of conjecture, philosophy, or even economic analysis. It is an established mathematical fact. Personal accounts of the size proposed in Ryan-Sununu would eliminate the long-term deficits of Social Security without tax increases or benefit cuts.

If the administration doesn't want to take on the transition to personal accounts this large all at once, it can do so in smaller steps. It can just propose the biggest account they think can be handled now, but without any tax increases or benefit cuts. The policy can then be to expand the personal accounts to the full Ryan-Sununu size over time.

But the White House staff doesn't understand this approach, so it has the president promoting large tax increases and draconian cuts in future promised Social Security benefits. Of course, these proposals are deeply unpopular, and, again, the more Mr. Bush talks about his plan, the more unpopular it is.

And rightly so. Because tax increases and cuts in future promised benefits cannot solve the problem. Indeed, they will only worsen the problem: They will reduce Social Security's already miserably low return even more. More and more workers will get actually negative returns under the program, rather than the much higher market returns.

That is why personal accounts are the only solution. Only through personal accounts will workers be able to get the much higher market returns, while the long-term Social Security deficit is eliminated.

Now the confusion of the White House staff has reached its ultimate conclusion. In recent days, the administration has said it is willing to consider abandoning personal accounts altogether as an option for Social Security and consider only add-on accounts. Senate Finance Committee Chairman Charles Grassley has indicated he is willing to consider the same thing.

What is in prospect here is a deal with AARP involving tax increases for higher-income workers (Republicans), benefit cuts for higher-income workers (Republicans), and add-on accounts where workers can put in additional funds besides their Social Security taxes and get benefits from them outside of Social Security. The add-on accounts may include tax credits and subsidies for contributions from lower-income workers (Democrats).

We already have plenty of add-on accounts in IRAs, 401(k)s, etc. They do nothing to solve Social Security problems. Workers and employers still must pay the taxes into the old system for a miserable, poor deal, made worse by the benefit cuts and tax increases. Those add-on accounts also do nothing to reduce the long-term deficits of Social Security.

Moreover, tax increases and benefit cuts focused on higher income workers are a huge tax increase on productivity, work, entrepreneurship and small business. They will smack down the economy and effectively repeal the Bush first-term tax cuts.

Conservatives must oppose such a Social Security sellout. (ed. emphasis added)

Peter Ferrara is a senior fellow at the Institute for Policy Innovation and director of the Social Security Project for the Free Enterprise Fund.