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fierce, shrill, and unreasoned denunciations of allowing workers
the freedom to choose a personal-account option for Social Security
may impress the gullible. But those very qualities of the critique
reveal its thorough hollowness. The literally hysterical criticisms
we have heard, based mostly on outright fabrications concerning
President Bush's eventual personal-account proposal, seem calculated
only to shout down any true debate, which the opponents apparently
fear they would lose.
How else can
you explain the reports that the August 22 meeting of President
Bush's reform commission will be dogged by a demonstration of disabled
people in wheelchairs supposedly fearing that the president's personal-account
proposal would threaten their disability benefits.
President Bush
has said from the very beginning that the personal accounts would
not involve or affect disability or survivors benefits. One of the
7 principles of Social Security reform on which he campaigned was
that the survivors and disability components of Social Security
must be preserved. Under his vision of personal accounts, those
benefits would continue to be provided by Social Security as today,
with no change due to the reform.
This position
has been echoed by all the members of his commission. Supporters
of personal accounts have also always proposed to continue these
benefits, either through Social Security as today or through private
insurance tied to the personal accounts. Countries that have adopted
personal accounts have all continued to provide for these benefits
through one of these two ways. The supposed threat to disability
benefits is just a theatrical fabrication.
This
Is Leadership?
The invective
hurled at President Bush's commission by Democratic party leaders
Richard Gephardt and Tom Daschle follow along in this same vein.
The Interim Report of the President's Commission merely restates
what the official annual reports of the Social Security Board of
Trustees have said for some time. Social Security is badly underfunded
for the long haul. The program will start to run deficits in 2016.
The federal government will have to come up with over $5 trillion
in general revenues over the following 20 years or so to continue
to pay promised benefits.
By 2038, Social
Security will run out of trust-fund bonds to redeem for those general
revenues. In the ensuing years, taxes will probably have to be raised
by 40% or more, or benefits cut by one-fourth, to close the yawning,
long-term, Social Security financing gap. These financial problems
are primarily due to fundamental, longstanding, well-known, demographic
trends, regarding fertility and life expectancy in particular.
Moreover, even
without such tax increases or benefit cuts, Social Security already
offers workers a very low return on the taxes they and their employers
pay into the system, as compared to standard market investment returns.
Additional tax increases or benefit cuts will make an unacceptably
poor deal even worse.
The commission
offers the prospect of addressing these problems by allowing workers
the freedom to choose to save and invest part of their Social Security
payroll taxes in their own personal accounts. The market investment
returns earned by these accounts would pay workers much higher benefits
than Social Security promises, let alone what the program can pay.
In a properly structured reform, the personal accounts would pay
much higher benefits for lower income workers as well as everyone
else. The personal accounts offer special benefits to African Americans,
Hispanics, women, and other minorities who lose out under the current
system for various reasons. The personal accounts offer these workers,
and moderate income blue-collar workers across the board, their
only real chance to accumulate their own personal nest eggs of capital
wealth, greatly broadening the distribution of wealth overall.
In addition,
through the personal accounts, the long term Social Security financing
problem would be eased as retirees in the future come to rely on
personal accounts in place of part of their Social Security benefits,
reducing the financial burden on the program. The long-term financing
gap can consequently be reduced, or even eliminated altogether,
without raising taxes or cutting benefits.
Finally, this
is not all just speculation. Increasingly, other countries around
the world are adopting just such reforms, with these expected benefits
in fact resulting for their workers.
Yet, here is
Gephardt's response to the commission report and the progressive,
positive, highly beneficial personal-account reform it portends:
The Commission…members
are trying to undermine public confidence in Social Security and
scare people into thinking we have no choice but to cut benefits
….It is stacked with members who support a plan — privatization
— that will result in benefit cuts. What is going on here is not
a mystery. The Republican party has always opposed Social Security
and Medicare, and these latest scare tactics are part of a sixty-six
year drive to gut Social Security and let people fend for themselves
at age 65.
Daschle chimed
in by saying, "Your Social Security benefits will be cut under
the Commission report by 41%, nearly one-half." Gephardt added
that the commission report "is irresponsible….If you do
the President's plan, you might cause a reduction of as much as
40% of present benefits going out of Social Security."
CNN reported
the reaction to the commission by saying that the Democrats "responded
by launching what they say will be a very loud effort to portray
the president's commission as simply an effort by Republicans to
destroy Social Security."
Just who are
employing the scare tactics here? The commission, or Gephardt and
Daschle?
Cut benefits?
The whole point of personal accounts is to avoid the Social Security
benefit cuts that will be inevitable on our current course, and
increase benefits through the much higher returns of real market
investments. It is Gephardt and Daschle who are leading us to benefit
cuts by denying that there is any problem until it is too late.
Moreover, nothing
the commission has done or said raises any hint of cutting benefits
by 40%. That is just a complete fabrication advanced by Democrat
party activists. Rest assured that any personal-account plan proposed
by the administration will provide for increased retirement benefits
overall. How can anyone think the president will take himself and
his party out on a limb for anything else?
Trying to destroy
Social Security? What the president is trying to do is modernize
and expand the Social Security framework to bring in a role for
real investment through personal accounts that will be the personal
property of each worker. This will be accomplished through a structured
system including major investment institutions that will be easy
for unsophisticated investors. And the entire system would continue
to be backed up by a safety net guarantee.
Of course,
there have been responsible and constructive Democrat voices regarding
the commission. Co-Chairman Daniel Patrick Moynihan told the public,
"Citizens who want to know the rest of the details must look
to the Social Security trustees who will tell them this. The do-nothing
plan proposes to cut benefits 25% to 33%. Former senator Bob Kerrey
of Nebraska also supported the commission and endorsed the need
for reform including a personal-account option.
Commission
member Robert Johnson, the founder of Black Entertainment Television,
told reporters that Democrats should "Lower their rhetoric,
stop the 'kill the messenger' strategy, and address a very serious
problem that will not go away by calling names and trying to hide
in the sand." Another Democrat, Olivia Mitchell, Professor
at the University of Pennsylvania's Wharton School of Business,
fully endorsed the commission report's conclusions that blacks and
women would fare better with personal accounts. She told reporters,
"I and many fellow Democrats believe that increasing taxes
while keeping the current system in place is the wrong way to go."
The same points
were echoed by former Democrat Rep. Tim Penny of Minnesota and the
5 additional Democratic members of the commission. These voices
represent today's truly progressive wing of the Democratic party.
Gephardt and
Daschle, by contrast, are simply reacting in crassly political terms.
They are pursuing a political strategy based on what they apparently
believe is the low intelligence of voters. They think that by screaming
about phantom benefit cuts and destroying Social Security they can
scare gullible voters into an anti-Bush, anti-Republican stampede.
Forget about statesmen coming together to do something good for
the country in reforming and modernizing Social Security.
This self-parodying,
self-discrediting foolishness is not the real problem. For in today's
decentralized media and communications system, voters are too highly
informed, and the case for a well-structured personal-account option
is too overwhelming, for this Democratic leadership strategy to
work. The real danger is that congressional Republicans will be
the ones gullible enough to believe that the Democrats crass attack
is politically appealing.
If congressional
Republicans embrace the president's personal-account initiative
and aggressively emphasize all of its positive features for working
people and minorities, they will be the modern progressives and
the Democrats and the Old Left will be the stifling reactionaries.
Republicans will make deep inroads into the Democrat base as a result.
This is a prescription for sweeping long-term victory.
If, however,
the Republicans cut and run on the president at this late date,
they will fracture their own base, which strongly supports personal-account
reform. The Democrats will then rally their base against the retreating
Republicans, who will look like they are admitting their own guilt,
and will leave the field to the argument that maybe Democrats are
needed to protect Social Security against them. This is a prescription
for sweeping long-term defeat for Republicans.
There is just
no turning back now.
George
Orwell's Assets
Nothing seems to inflame the critics more than the accurate claim
by the commission that the Social Security financing crisis really
starts in 2016. Gephardt huffs, "The assertion that Social
Security is going bust in 2016 flies in the face of reality. The
facts are these: Social Security has enough reserves in the trust
fund to last at least until 2038. These assets have the full faith
and credit of the United States government behind them."
Daschle also
told reporters that the Social Security trust fund was invested
in government bonds that could be redeemed at any time and it was
irresponsible to suggest otherwise.
The highly
irascible Paul Krugman echoed these views in the July 22nd New
York Times. He called the commission's interim report "sheer,
mean-spirited nonsense" because it says that the Social Security
financing crisis really begins in 2016. Krugman notes as well the
trillions of dollars in U.S. government bonds accumulating in the
trust funds, and says that such bonds are a "perfectly good
asset when they are accumulated by private pension funds,"
so why aren't they just as good when they are held by Social Security?
But these critics
completely miss the point. The problem was never that the government
couldn't be counted on to pay off the government bonds in the trust
funds. Rather, the problem is that it is going to be economically
quite painful to pay them off.
From 2016,
when Social Security starts to go into deficit, until 2038, when
the trust funds are projected to run out, the federal government
is going to have to pay off over $5 trillion in Social Security
trust-fund bonds in order to continue to pay Social Security benefits
during that time. Just where is the government going to get that
money? That is the problem. No one is saying that Social Security
"is going bust" in 2016.
The reactionary
wing of the Democratic party seems to be saying that we could just
raise taxes by $5 trillion during that time to pay for it. That
is before the really big increases in the payroll tax that will
be needed after the trust-fund bonds run out in 2038. Or we could
go back to running deficits and raise the national debt by over
$5 trillion. That would more than double today's national debt.
Indeed, the
pressure of this financing burden could even lead the government
to cut Social Security benefits during this time to ease the burden.
This doesn't
sound like there is no problem until 2038.
President Clinton
knew better. His Fiscal 2000 Annual Budget Report, echoing the Congressional
Budget Office, the General Accounting Office, the Congressional
Research Service, and the Social Security Trustees, states,
These Trust
Fund balances…do not consist of real economic assets that
can be drawn down in the future to fund benefits. Instead, they
are claims on the Treasury that, when redeemed, will have to be
financed by raising taxes, borrowing from the public or reducing
benefits or other expenditures. The existence of large trust fund
balances, therefore, does not, by itself, have any impact on the
government's ability to pay benefits.
What we have
here is a growing debate between the progressive and reactionary
wings of the Democratic party.
Keeping
the Serfs on the Manor
The complete
intellectual hollowness of the criticism of a personal-account option
for Social Security naturally raises the question: Why are they
really against it?
Sure, the opponents
say, put a personal account on top of Social Security. But don't
touch a dime of the $500 billion that now goes into Social Security
each year.
For the old
line, liberal/left, Washington establishment, this is all just a
power struggle. If they allow any part of the $500 billion currently
paid into Social Security each year to go into personal accounts
instead, they lose control over that money. And they currently use
that money to buy a lot of votes and a lot of dependency on their
continued political power.
To the extent
the money goes into personal accounts, then power passes from the
old line Washington establishment into the hands of working people
all over the country. The workers would then each own and control
the money. As they become financially independent, they would be
freed of dependency on the old line establishment's political machine.
We hear much
from opponents of personal accounts of the great risk they would
entail. Well, this is the risk they are really worrying about.
Just think
how different politics would be if instead of 40 million seniors
receiving close to $400 billion in checks from the government each
year, retired families each had a trust fund of $500,000 to $1 million
or more invested in private capital markets. The serfs would be
freed. Our national retirement policy would mature from feudalism
to modern, liberal, free-market capitalism.
This is what
the Lords of the Manor here in Washington are fighting against so
vociferously.
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