“The Democrats should have a plan, and they should talk to the president and the congressional Republicans about it.” Thus spoke former president Bill Clinton on ABC News on May 16. Clinton’s fellow Democrats did not exactly race to the microphones with fresh ideas on how to modernize Social Security. In fact, as President Bush has promoted voluntary personal retirement accounts this year, Democrats have offered three positions on this issue, each as appetizing as a bowl of chilled spinach:
The first and most popular Democratic plan could be dubbed: “Don’t do something. Just stand there.” Almost every Democrat seems content to delay indefinitely any Social Security reform and merely kick the policy can down the road, perhaps into the first Chelsea Clinton administration, or beyond.
This policy of paralysis carries a steep price tag. Each year of inaction ultimately will cost taxpayers a whopping $600 billion, the U.S. Treasury estimates. Talk is cheap, but the Democratic posture of not talking with Republicans about Social Security isn’t.
Come 2015, the so-called Trust Fund will peak. After that, more money will flow out of Social Security than will flow in. Thus, the giant sponge that Congress uses to absorb red ink will start to shrink. Each year will bring in less money for Congress to misallocate from future retirement obligations into immediate spending. (This genuine fraud would send the system’s managers to jail, were they in the private sector.)
These depleted surpluses will wane until 2041, when the entire “Trust Fund” will be as empty as it already is fictional. Payroll taxes then will be able to pay 73 percent of that year’s obligations, according to Social Security’s trustees. Unless every senior gets a universally honored, 27-percent discount card, America will be in crisis. (Try telling your landlord or banker that you can pay 73 percent of your rent or mortgage. Don’t wait to be high-fived.)
The second Democratic approach resembles a Freudian slip from Senator Jon Corzine (D., N. J.). Let’s call it: “Damn the dollar. Full speed ahead!”
After President Bush visited the Social Security Trust Fund in Parkersburg, W. Va. on April 5, he said, “There is no trust fund–just IOUs” stored in a filing cabinet and supported by no economic assets at all. Corzine disagreed, telling journalists: “U.S. Treasury securities have the ability to be paid under any circumstances based on the ability of the government to print money.” Corzine’s press secretary denied that this was an actual proposal, although the senator’s quote appeared prominently on his website.
“It’s never advisable to print too much money,” warns Milton Friedman, the 1976 Nobel laureate in economics and Hoover Institution senior research fellow. He says of the ensuing inflation: “That’s a different form of taxation. It’s a hidden form of taxation, but it’s taxation nonetheless.”
One top Wall Street forecaster told me that Corzine’s thinking would cut the dollar’s value by more than one third in the first year.
If firing up the printing presses were sound public policy, Argentina would be Switzerland. As if channeling Evita Peron herself, Corzine’s comment hints at rising prices, a currency flimsier than Kleenex, and town squares full of cross citizens.
The third Democratic position, call it “Pay Till It Hurts,” comes from Rep. Robert Wexler (D., Fla.). He deserves applause for ignoring his party elders and introducing an actual reform blueprint.
“My allegiance to seniors is greater than my allegiance to the Democratic leadership,” Wexler said. Good for him.
Too bad his plan is a tax hike.
Social Security does not tax wages above $90,000. Wexler would, boosting taxes on incomes above that level from 0 percent to 6 percent, split evenly between employers and employees.
Such a massive tax increase on 9.8 million Americans, 3.6 million of them over age 50, will hammer the entire nation. Rea Hederman of the Heritage Foundation’s Center for Data Analysis calculates that Wexler’s Social Security Forever Act of 2005 will reduce U.S. GDP by $330 billion in its first ten years, killing 3.4 million jobs.
So, what Democrats recommend on Social Security is zippo, a debauched dollar, or a huge tax hike. By comparison, President Bush’s voluntary personal retirement accounts look sexier by the day.
–Deroy Murdock is a New York-based columnist with the Scripps Howard News Service and an adviser to the Cato Institute’s Project on Social Security Choice.