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June 24, 2005
Another Social Security proposal I don't like
With apologies to Brad DeLong, I think this deserves a "Why, oh why..." sort of intro.
Here's the Washington Post article about DeMint's proposal for private accounts. They catch on to the flaw.
Key Republican lawmakers, scrambling to keep President Bush's Social Security proposals afloat, plan next week to embrace an idea that many have avoided thus far: funding personal retirement accounts with surplus revenue that now pays for other government programs.
There's a reason they avoided it. It's a bad idea.
The strategy is controversial because it would create new budget problems. Either the diverted money would have to be replaced with new taxes, or Congress would have to slash programs now funded by Social Security's excess payroll taxes.
and...
Aides close to Graham, Santorum and DeMint said their proposal will not preclude broader initiatives, including several that have been floating for months. "It is not a comprehensive reform," one aide said. "It is sort of a first step toward gaining momentum." A Graham aide said the senator still thinks Congress must trim benefits and raise taxes to safeguard Social Security's future.
Another GOP staffer familiar with Tuesday's scheduled event said the participants will acknowledge that redirecting surplus Social Security funds will create budget problems elsewhere.
"No one is going to find a magic bullet," the staffer said. "There's going to be real pain at some point."
Among other things, the proposal would be horribly confusing to implement. Are they proposing to divide up whatever the Social Security surplus turns out to be in a given year among millions of private accounts for people? And these accounts just hold government bonds? The surplus is set to shrink, you know. So over time, the additions to the private accounts shrinks? At least Al Gore's proposal was more practical. This one just seems odd to me. The only thing I can possibly come up with is that they figure that they will add-on or carve-out more contributions for the private accounts later. But if that isn't spelled out at the beginning, it could lead to trouble down the road. Do you raise payroll taxes down the road to pay for low income taxes today?
If they want a "lockbox" as a commitment mechanism, that's one thing. But the addition of private accounts would be needlessly costly added to a plan like this. It doesn't make any sense. There are better ways. It seems like they are trying to blend Gore's lockbox with a minimal sort of private account. The result would be more costly and confusing than either Gore's lockbox or a straight-up diversion of some percentage of the payroll tax to private accounts.
I like the principle of private accounts--I really do. But when something like this comes out of left field ("right" field?), it seems to indicate that there is not a well thought out strategy here. DeMint has this plan, Bennett has another, there are already House and Senate bills (imperfect as they are) languishing in limbo.
Socialsecuritychoice.org is already spinning this as free lunch. They don't use those words, but they also don't acknowledge the costs. Not acknowledging the costs constitutes "spin" from my point of view.
Mark Thoma is disgusted with it too, as is PGL (Angry Bear). Thoma goes to great lengths to smack it down, which is really unnecessary. "No free lunch" says it all. The rest is commentary.
UPDATE: It's worse than I thought. (h/t Mark Thoma)
Posted by William Polley at June 24, 2005 12:36 AM
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Comments
No free lunch says it all. But then Mark and I have been say there is no free lunch in reference to this crowd for a while.
Posted by: pgl at June 24, 2005 8:13 AM
DeLong and Andrew Samwick have also weighed in.
Posted by: pgl at June 25, 2005 3:29 PM