7.11.00
Coffee for Ramesh

7.11.00
The People's Game

6.30.00
RU Ready?

6.27.00
Mel Gibson, Conservative

6.23.00
Cut the Gas Tax? Not So Fast

6.23.00
A Death in Texas

6.22.00
All Tuckered Out

6.20.00
Dissent II

6.16.00
We Should Worry About Police Violence

6.15.00
The American Diet II

6.13.00
We've Got Inflation Now

6.08.00
Rip It Apart

7/11/00 12:25 p.m.
Coffee for Ramesh
Why conservatives should shun the Gore accounts.

By Derrick A. Max, director of government affairs, Cato Institute

hile sipping a cup of freshly brewed and highly caffeinated coffee, I learned that I had yet again come under the assault of my friend and ally, Ramesh Ponnuru (Yes, Ramesh, Cato has decaf — but as long as caffeine is a legal drug, I intend to be a user). Fortunately, the outlet this time was NRO, and not the Washington Post; unfortunately, the attack was more personal and, in my opinion, mischaracterized the tone of my private exchange with Mr. Ponnuru. But I digress. For the reader's sake, I will limit my response to the facts and forget the folly surrounding my once private e-mails to National Review's talented senior editor.

As background, Ramesh wrote a fairly convincing article for the Washington Post attacking "conservatives" for their knee-jerk opposition to Vice President Gore's new $200 billion retirement plan. I say convincing, because I am in agreement with many of the points he made. In fact, readers of my original article for NRO, to which Ramesh took exception, will remember that I praised the Gore plan for two key concessions — that it allows for the creation of privately-controlled individual retirement accounts and that such accounts could be established at a reasonable cost administratively.

Where Ramesh and I disagree is on the design of those accounts and on the source of the money to be used. The core problem may be that Ramesh mistakenly lumps me into the "conservative" camp and assumes that I agree with the notion that a tax credit is the same as a tax cut; or more broadly, that I favor any reduction in taxes, regardless of how that reduction is structured. This is not the case.

Being a libertarian, I am skeptical of government control and manipulation in all its forms. To me, there is little difference between a tax credit and a direct subsidy. While the subsidy gets the taxpayer to act a certain way by cutting them a check for doing so, the credit entices the same action by cutting them a coupon (for taxes owed) — a distinction without much of a difference, economically or philosophically. Do Ramesh and his fellow "conservatives" at NRO support ethanol credits, housing credits, R&D tax credits or the child-are tax credit (which Gore is seeking to expand)? If that is what it means to be a conservative, then conservatives ought to be embarrassed. While rebating taxes owed is superior to merely cutting checks, both pale in comparison to keeping the government out our pockets and our decisions entirely. It is, after all, our money. Why must we jump through government-imposed hoops to get it back?

The fact is that taxpayers already pay enough in taxes to support their retirement, but the Ponzi-type scheme into which their retirement funds are directed provide such dismal returns that many are left in poverty once they retire. This is where Ramesh and I have the greatest quibble. Ramesh believes that individuals earning $15,000 per year can "scrap together" enough money to benefit from the Gore proposal. The data clearly suggest otherwise. Less than half of those afforded the opportunity to participate in such plans in the private sector do so (yes, as the stock market has risen, so too has participation, but not significantly). And, when they do participate, they do not "max out" by contributing enough to capture the full benefit being offered by their employer. Finally, the data is skewed further by the fact that many, if not most, low-income participants in such plans are likely to be "second earners" whose income is almost entirely discretionary and is not the primary source of income within their household. It is easy to scrape together money out of a $15,000-a-year income if your spouse makes $50,000.

The data confirm what is merely common sense — poorly paid workers do not have disposable income that can be diverted to Gore's new accounts, regardless of the generosity (or source) of the match being offered. But why should they have to? These same workers already sacrifice 12.4 percent of their income to Social Security. Allowing workers to use these funds for personal retirement accounts makes perfect sense. This is the core difference between Bush and Gore — and between Ramesh and I. The Bush plan would reform Social Security, while the Gore plan would only add to it.

What is needed is twofold: A retirement investment program that provides an opportunity to produce yields at a rate of return commensurate with that of the stock market, and the abandonment of Social Security, which is a financial prison. Gore's plan palliates the first, while doing nothing about the second. Ultimately, the problem with Ramesh's thinking is that he surrenders his normal conservative skepticism about wasteful, ineffective, and obsolete government endeavors to grant Gore one miniscule concession — for being perhaps the last man in America to acknowledge the fecundity of the stock market. Maybe Ramesh ought to inject some caffeine into his own daily diet before ceding any more ground to Mr. Gore on behalf of conservatives.

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