TheRightWing
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Saving the Surplus
[font=Garamond, Times]Three senators embrace the "personal lockbox" to reform Social Security.[/font]
[font=Verdana, Times]
Monday, June 20, 2005 12:01 a.m. EDT
The public is anxious about President Bush's reform of Social Security, and the idea is in trouble. Ceaseless pounding by liberals has driven many Republicans into a defensive crouch. It's time for some political jujitsu that will instead focus the public's attention on stopping Congress from spending the extra payroll taxes now flowing into Social Security on anything else. The only effective way to prevent that would be to take the money off the table by starting personal Social Security accounts for every American who wanted one.
That's why the White House should embrace an idea that three GOP senators will propose tomorrow. They want to seize back the moral and political offensive on the issue of personal accounts. By proposing the creation of personal "lockboxes" to ensure that the government can't raid Social Security taxes for other programs, they would force opponents to cast a vote against the idea that individuals should have ownership and control over some of their own retirement funds.
The idea has the potential to unite three separate strands of thinking in the GOP. One of its Senate sponsors is Jim DeMint of South Carolina, known as a free-market purist who believes personal accounts must be the centerpiece of reform. Another is Lindsey Graham, also of South Carolina, who has proposed increasing the cap on payroll-tax payments at the same time as personal accounts are created to supplement the system. And Pennsylvania's Rick Santorum is a noted leader of social conservatives who believe retirement reform must be family-friendly. All three men agree that while their proposal is not comprehensive and doesn't preclude other ideas to shore up the system, it represents a good first step.
Politically, their proposal does disarm some of the most oft-used arguments against reform. It would create no new debt for the government because, unlike President Bush's proposal, the personal accounts would use only the surplus payroll taxes now flowing into the Treasury. That surplus will hit some $85 billion next year, and grow in succeeding years to the point that it could provide every worker who wanted one with a personal account of some $1,200. The surpluses will total some $2.5 billion until 2017, when Social Security starts running a deficit as baby boomers begin to retire. Preventing that money from being "raided" by a spendthrift Congress and White House could be enormously popular with a cynical public.
In addition, if the personal accounts were limited to no-risk, but marketable, Treasury bills, the argument about the "scary and risky" stock market investment of payroll taxes would be neutralized. Converting the nonmarketable IOUs the government now holds into marketable Treasury bills issued to taxpayers would create an asset that individuals would own and be able to pass on to their heirs. If history is a guide, such risk-free Treasurys would earn an annual rate of return of between 2.5% and 3%--much better than Social Security will deliver. The surpluses would become real assets owned by citizens rather than government IOUs (or, more accurately, "I owe me's") piling up in a filing cabinet in West Virginia.
The White House's initial reaction is positive. Presidential spokesman Trent Duffy says the new approach "is worth taking a look at. It does have a healthy personal-account feature. But the president also wants to address the underlying solvency problem." Another spokesman declined to say that Mr. Bush would refuse to sign a bill that addressed only one of his two concerns.
Sen. DeMint told me that he believes that once personal accounts "got off the ground, you would see them become enormously popular," and Congress would be compelled to find a way to reform the system to ensure their continuation after payroll tax surpluses dried up in 2017.
For his part, Sen. Graham told the Los Angeles Times he thinks protecting the Social Security surplus would eventually attract bipartisan support. "There's lots of public agreement that Social Security taxes should be used for Social Security benefits," he said. "This is a good, commonsense start to what will apparently be a long debate about solvency." Iowa's Chuck Grassley, chairman of the Senate Finance Committee, agrees. "The only negative about it is that it doesn't solve the Social Security solvency problem," he says. "But it breaks the ice on personal accounts."
On the House side, GOP leaders are working with the Free Enterprise Fund and other pro-reform groups on a similar bill they summarize as "Stop the Raid, Start the Personal Accounts." Rep. Bill Thomas, chairman of the House Ways and Means Committee, told CNBC's "Kudlow & Co." last month that he was intrigued with the idea of using the payroll tax surpluses in a more productive way and combining that idea with steps to improve the financial position of private pensions. He wants to encourage more private savings and also create tax incentives for Americans to take out insurance to pay for long-term care costs, thus relieving the Medicaid program of one of its heaviest burdens.
Would the deficit increase if Congress used the Social Security surpluses to create personal accounts rather than finance current government spending? Not if Congress found the will to cut federal spending by roughly 3% a year. Even if they don't, the unavailability of the payroll taxes to fund other programs could be useful. As Federal Reserve Chairman Alan Greenspan told Congress in March, "One can credibly argue that [the trust funds] have served primarily to facilitate large deficits in the rest of the budget." He went on to argue that personal accounts would add to overall savings, which "in turn, would boost the nation's capital stock. The reason is that money allocated in the personal accounts would no longer be available to fund other government activities." In other words, once Congress couldn't get its mitts on the payroll tax money, it would be put to more productive use in the hands of individuals owning their own accounts.
Not surprisingly, Democrats claim they have politically buried the notion of personal accounts and that it can't be revived by changing the subject to the Social Security surplus. "The Bush privatization of Social Security is still unacceptable to the American public," says Rep. Sander Levin of Michigan, a leading Democrat on the House Ways and Means Committee. "You can dress up the body in new clothes, but the body stays the same."
But Democrats privately worry that Social Security reformers could tap into a deep vein of public anger over how payroll tax surpluses have been spent on other programs. After all, Democrats have railed against the practice for years. Al Gore proposed his famous "lockbox" in 2000 to guard against the practice. Even before that Harry Reid, now the Senate minority leader, inveighed against the depletion of the trust funds by calling it "embezzlement, thievery." A recent poll taken by John Zogby for the Cato Institute found that by a 70% to 22% margin, voters believe that opponents of President Bush's proposals for Social Security reform have an obligation to address the issue and put out their own plan for reform. If Democrats choose to oppose even a plan that would ensure that Social Security surpluses are actually used for retirement, the political tables on this issue could still be turned. [/font]<SECTION:CONTENT_FOOTER>
</SECTION:CONTENT_FOOTER>
[font=Garamond, Times]Three senators embrace the "personal lockbox" to reform Social Security.[/font]
[font=Verdana, Times]
Monday, June 20, 2005 12:01 a.m. EDT
The public is anxious about President Bush's reform of Social Security, and the idea is in trouble. Ceaseless pounding by liberals has driven many Republicans into a defensive crouch. It's time for some political jujitsu that will instead focus the public's attention on stopping Congress from spending the extra payroll taxes now flowing into Social Security on anything else. The only effective way to prevent that would be to take the money off the table by starting personal Social Security accounts for every American who wanted one.
That's why the White House should embrace an idea that three GOP senators will propose tomorrow. They want to seize back the moral and political offensive on the issue of personal accounts. By proposing the creation of personal "lockboxes" to ensure that the government can't raid Social Security taxes for other programs, they would force opponents to cast a vote against the idea that individuals should have ownership and control over some of their own retirement funds.
The idea has the potential to unite three separate strands of thinking in the GOP. One of its Senate sponsors is Jim DeMint of South Carolina, known as a free-market purist who believes personal accounts must be the centerpiece of reform. Another is Lindsey Graham, also of South Carolina, who has proposed increasing the cap on payroll-tax payments at the same time as personal accounts are created to supplement the system. And Pennsylvania's Rick Santorum is a noted leader of social conservatives who believe retirement reform must be family-friendly. All three men agree that while their proposal is not comprehensive and doesn't preclude other ideas to shore up the system, it represents a good first step.
Politically, their proposal does disarm some of the most oft-used arguments against reform. It would create no new debt for the government because, unlike President Bush's proposal, the personal accounts would use only the surplus payroll taxes now flowing into the Treasury. That surplus will hit some $85 billion next year, and grow in succeeding years to the point that it could provide every worker who wanted one with a personal account of some $1,200. The surpluses will total some $2.5 billion until 2017, when Social Security starts running a deficit as baby boomers begin to retire. Preventing that money from being "raided" by a spendthrift Congress and White House could be enormously popular with a cynical public.
In addition, if the personal accounts were limited to no-risk, but marketable, Treasury bills, the argument about the "scary and risky" stock market investment of payroll taxes would be neutralized. Converting the nonmarketable IOUs the government now holds into marketable Treasury bills issued to taxpayers would create an asset that individuals would own and be able to pass on to their heirs. If history is a guide, such risk-free Treasurys would earn an annual rate of return of between 2.5% and 3%--much better than Social Security will deliver. The surpluses would become real assets owned by citizens rather than government IOUs (or, more accurately, "I owe me's") piling up in a filing cabinet in West Virginia.
The White House's initial reaction is positive. Presidential spokesman Trent Duffy says the new approach "is worth taking a look at. It does have a healthy personal-account feature. But the president also wants to address the underlying solvency problem." Another spokesman declined to say that Mr. Bush would refuse to sign a bill that addressed only one of his two concerns.
Sen. DeMint told me that he believes that once personal accounts "got off the ground, you would see them become enormously popular," and Congress would be compelled to find a way to reform the system to ensure their continuation after payroll tax surpluses dried up in 2017.
For his part, Sen. Graham told the Los Angeles Times he thinks protecting the Social Security surplus would eventually attract bipartisan support. "There's lots of public agreement that Social Security taxes should be used for Social Security benefits," he said. "This is a good, commonsense start to what will apparently be a long debate about solvency." Iowa's Chuck Grassley, chairman of the Senate Finance Committee, agrees. "The only negative about it is that it doesn't solve the Social Security solvency problem," he says. "But it breaks the ice on personal accounts."
On the House side, GOP leaders are working with the Free Enterprise Fund and other pro-reform groups on a similar bill they summarize as "Stop the Raid, Start the Personal Accounts." Rep. Bill Thomas, chairman of the House Ways and Means Committee, told CNBC's "Kudlow & Co." last month that he was intrigued with the idea of using the payroll tax surpluses in a more productive way and combining that idea with steps to improve the financial position of private pensions. He wants to encourage more private savings and also create tax incentives for Americans to take out insurance to pay for long-term care costs, thus relieving the Medicaid program of one of its heaviest burdens.
Would the deficit increase if Congress used the Social Security surpluses to create personal accounts rather than finance current government spending? Not if Congress found the will to cut federal spending by roughly 3% a year. Even if they don't, the unavailability of the payroll taxes to fund other programs could be useful. As Federal Reserve Chairman Alan Greenspan told Congress in March, "One can credibly argue that [the trust funds] have served primarily to facilitate large deficits in the rest of the budget." He went on to argue that personal accounts would add to overall savings, which "in turn, would boost the nation's capital stock. The reason is that money allocated in the personal accounts would no longer be available to fund other government activities." In other words, once Congress couldn't get its mitts on the payroll tax money, it would be put to more productive use in the hands of individuals owning their own accounts.
Not surprisingly, Democrats claim they have politically buried the notion of personal accounts and that it can't be revived by changing the subject to the Social Security surplus. "The Bush privatization of Social Security is still unacceptable to the American public," says Rep. Sander Levin of Michigan, a leading Democrat on the House Ways and Means Committee. "You can dress up the body in new clothes, but the body stays the same."
But Democrats privately worry that Social Security reformers could tap into a deep vein of public anger over how payroll tax surpluses have been spent on other programs. After all, Democrats have railed against the practice for years. Al Gore proposed his famous "lockbox" in 2000 to guard against the practice. Even before that Harry Reid, now the Senate minority leader, inveighed against the depletion of the trust funds by calling it "embezzlement, thievery." A recent poll taken by John Zogby for the Cato Institute found that by a 70% to 22% margin, voters believe that opponents of President Bush's proposals for Social Security reform have an obligation to address the issue and put out their own plan for reform. If Democrats choose to oppose even a plan that would ensure that Social Security surpluses are actually used for retirement, the political tables on this issue could still be turned. [/font]<SECTION:CONTENT_FOOTER>
</SECTION:CONTENT_FOOTER>
