On Wednesday, the Kerry campaign issued a false press release. It claimed that a study by Austan Goolsbee had proven that under the president’s Social Security plan, “the 45 million Americans who count on Social Security will see up to a 45 percent cut in their benefits, while Bush’s biggest backers–the financial services industry–will reap billions as part of the largest windfall in Social Security history.” Goolsbee’s study said nothing about benefit levels, let alone for today’s retirees, and after he told me so, the Kerry campaign revised its press release. Good for it.
The campaign has backed off its claim that Goolsbee’s study tells us anything about benefit levels under a Bush-style reform. They have also gotten rid of all the language that claims that today’s retirees would see their benefits cut–since there’s no way they can make that claim honestly. Instead, they are using somewhat ambiguous language that implies the claim. When the campaign says that he will protect seniors from benefit cuts, it’s up to the reader to understand that it is referring to the seniors of future decades, not to today’s seniors.
What are the Kerry campaign’s assumptions? The campaign analyzes one of the three plans that the president’s Social Security commission put forward and calls it the president’s plan. It relies on a Congressional Budget Office study that found that this plan would involve benefit cuts if individual investors got no higher rate of return than a Treasury bond. That’s sort of a no-brainer. If you’re trying to eliminate the entire long-term deficit of Social Security and not to raise taxes and there are no investment gains or tax increases, then benefits are of course going to go down. But this is not the only possible outcome, and the CBO does not say that it will come to pass. The Social Security Administration and the president’s commission on Social Security have concluded that under more optimistic, but plausible, assumptions, it is possible to fix the program’s deficit while also leaving future retirees better off.
Kerry cites Goolsbee for the proposition that individual accounts would provide a $940 billion windfall to Wall Street firms. This result actually does appear in Goolsbee’s paper. It is the result of assumptions about administrative costs. Goolsbee assumes that those costs will be comparable to the costs in private-sector defined-contribution plans, and that the proceeds would go to Wall Street firms.
Douglas Holtz-Eakin, the director of the CBO, notes that his agency uses the government’s Thrift Savings Plan for federal workers as its model. A Social Security reform plan modeled on the TSP, he says, would likely yield lower administrative fees–and could result in most of those fees’ going to a government agency rather than to Wall Street. Even if firms received $940 billion in revenue, the CBO director adds, it would be necessary to look at the costs those firms would incur before concluding that they would receive a windfall profit and that nobody else would benefit from that cashflow.
Finally, the Kerry campaign assumes that the president’s plan would tax away (“claw back”) 80 percent of the individual accounts at retirement. This is a mistake. The actual plan that the commission outlined–it was one of three plans, remember–allows people to put away money in an individual account. The more they put in, the less the government will pledge to give them to supplement their accounts when they retire. That’s the trade-off this plan offers to workers: You get to invest your Social Security taxes, in return for increasing your dependence on your investments. That’s the way the program’s shortfall can be reduced even while workers get a chance at higher returns. But the gains that people make in their accounts would not be taxed: They would be 100 percent the property of the account owners. The supplemental benefits from the government would not go down because someone’s investments had done well. None of the commission’s models involve that kind of clawback.
So: To get bad results for Social Security reform, Kerry has had to make a series of unlikely assumptions about what kind of reform plan would be offered–some of them assumptions that can draw no support from anything that has taken place in the world outside of his press releases.