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Social Security Privatization: The Reform That Isn't Needed for a Public That Doesn't Want It

The Bush administration appears determined to build on its "mandate" and push Social Security privatization early in Bush's second term. This seems an ill-advised plan for several reasons.

First, there is little compelling evidence that Social Security is in any kind of crisis and none at all that carving out private accounts will improve Social Security's fiscal position. In fact, it will almost certainly worsen that position.

Second, there is no evidence that the public is thirsting for this particular "reform". The new NBC News/Wall Street Journal poll finds that only 35 percent believe Bush has a mandate to allow "workers to invest some of their Social Security taxes in the stock market", compared to 51 percent who believe he does not. And when asked whether they thought it was "a good idea or a bad idea to change the Social Security system to allow workers to invest their Social Security contributions in the stock market", half said it was a bad idea and only 38 percent said it was a good one.

The poll also asked two other questions gauging sentiment about private accounts that mentioned some of the potential trade-offs involved in these accounts. The first question returned a 45-39 percent plurality in favor, while the second question returned a 46-41 percent plurality against, perhaps because the second question mentions the huge expenses involved in adding these accounts to the system. But in neither case do you get very strong support for private accounts, which is entirely typical of questions that explicitly mention the tradeoffs of privatization.

Of course, artfully-crafted questions that make private accounts sound like a free lunch (though, interestingly, not the good idea/bad idea question cited above) can find higher levels of support for private accounts. But inevitably this support contracts dramatically if any kind of reasonable followup is asked that mentions any of the costs associated with these accounts.

But if the public is not crying out for Social Security privatization, does that mean Democrats can confine themselves to simply opposing privatization and leaving it at that? I don't think so. If Social Security isn't broken, the overall US retirement and pension system is and the public knows this. Therefore, Democrats must offer something beyond defending the status quo, even if the part of the status quo they are most vigorously defending is worth a strong defense.

What is it that Democrats should be offering? That's a subject for useful debate. Democrats in search of a "compelling economic message" would do well to promote such a debate, rather than wasting time debating whether the party should be "populist" or not. Of course it should be, but populism is not enough: what exactly do Democrats propose to do to actually make the lives of Americans better? No amount of corporation-bashing (or hugging) can substitute for a compelling economic message that answers that question.

Comments

We need to decisively win the Social Security debate and then move on to bigger and better battles having demonstrated unequivocably that the Bush Administration was simply lying through its teeth on this issue. The general public is uneasily aware that it was lied to in the runup to Iraq, but is emotionally tied up with the message of patriotism in wartime/support the troops, they signed up and many feel that have to stay the course. But nobody enlisted in the War on Social Security. The Administration is publicly pushing growth numbers for 2005 (3.5%) that if plugged into the conventional model for Social Security (the Intermediate Cost alternative) totally fill the gap. The current model which produces the 2042 shortfall date is based on an economic model which predicted 2.7% growth for 2004 and 1.8% for 2005. Instead we are looking at 4.0% and 3.5%. Hello?

We just have to follow the numbers to create a crushing victory here.
2004 Social Security Trustees Report: Economic Assumptions under the Three Alternatives (http://www.ssa.gov/OACT/TR/TR04/V_economic.html#wp159107) &
2004 Report: Trust Fund Ratios under the Three Alternatives (http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp106217)
And along the way establish the narrative: "They are lying to you. Again."

We Need A Wage Policy

I think the central, domestic organizing principle of the Democratic Party should be to promote wage growth among the American workers. Real wages for median income workers have stagnated since the beginning of "Reganomics" almost 25 years ago, something I expect has never occurred before over such a long period of time. Just as Republicans chant "cut taxes, cut taxes" we should repeat "increase wages, increase wages."

The math signifying the advantages to the middle class of wage growth over tax cuts is convincing. Take someone making $35,000 a year. For simplicity, let's say he or she pays about $10,000 in taxes per year. A 10% tax cut equals a one time $1000 increase in such individual's take home pay. But policies that generate a yearly real income growth rate of 3% mean that this individual will get at least a $1000 raise every year and the amount of raise will increase as his or her income increases. Moreover, while tax cuts are "paid for" by either cuts in programs that help the middle class or add to the defecit, which increases interest middle class individuals have to pay, extra wages do not have this negative budgetary effect.

So, how to raise wages? The best way that I can think of is through a tax incentive. For example, my understanding is that currently a business deducts one dollar of its income for every dollar it pays to its workers as a business expense. Why not give an "enhanced" write off for wage payments that represent growth above the rate of inflation, let's say 1.5 dollars for every dollar paid to a worker as a "real" wage increase. Other ideas are more traditional. We need to constantly attempt to raise the minimum wage. Additionally, we need to advocate trade agreements that push up wages in foreign countries, a policy that helps by lessening the undercutting of our wages and by giving foreigner workers more money to buy our products.

While there may be some disagreement on specific policy proposals, I think wage growth should be the Democrats signature issue.

There was no compelling reason for the tax cuts, nor were they popular in opinion surveys, but they did them anyways. They're very determined - but unless there is an equally determined opposition, they will get their way.

Democratic plan: First assure people's basic retirement needs by keeping a system that invests in the most stable investment available, government bonds. Second, simplify the tax rules to encourage private savings and investments for retirement. Third, demand a Social Security Flat tax - tax all income.

Political plan: All out attack patterned after the Republican's health care ambush. Attack the presidents motives, his rationality, and his math. Enforce party discipline. Make this the one issue that if you cross you're out of the party.

Yes, there will be losses. But wouldn't it have been better for the party to have kicked Zell Miller out?

"If Social Security isn't broken, the overall US retirement and pension system is and the public knows this. "

Maybe part of the answer to your question is to define the problem. In what way is the retirement and pension system broken?

This piece just firms up my opinion that Bush's privatization scheme is dead in the water. This is my reasoning: One, he has had to use a huge amount of capital on Iraq as of late. Little is left to push this behemoth through Congress. Two, to finance the privatization Congress will have to raise the debt ceiling. The fiscal conservatives will not go for this and I think the public will outcry when they see the cost. Three, to quell conservatives (and maybe because the time is right) the issue of entitlements needs to be addressed. Certainly, this is a euphamism for cuts in social security and medicare and no one will like this.
I think the Demos can score much needed political capital in opposing the privatization plan. But as this piece aptly states, a cogent arguement with feasible alternatives needs to be crafted rather than the a "sky is falling" reactionary response.
Hey Ruy, how about some polling as to how the public feels about the increased public debt under the Bush administration, I haven't heard anything about that in a while?

A Democratic Alternative:
(1) Expand the private sector part of the retirement system by raising the maximums on 401Ks and IRAs, anb by going national with the Galveston plan (investment in conservative bank funds);
(2) Cut SS outflow by jumping the retirement age to 70 in the year 2025, shaving the top-level payment, and means testing all payments on a sliding scale;
(3) Replace the payroll tax with a flat tax on personal income from all sources with no ceiling; take the corporate share out of net profits not labor overhead.
The political result: (1) will appeal the free marketeers without getting a govt-run program in the stock market; (2) will be hard sell but will give Dems an image of decisive toughness; and (3) is simple tax justice.