Social Security As Welfare

George Will editorialized in WaPo Pat Moynihan was puzzled. He was speaking in March 1994, on an almost deserted Senate floor, about Social Security, but some unlikely people were listening. They were clerks in the front of the chamber -- mostly young law school graduates. "They never listen to speeches," Moynihan later wrote, "having other things to do and having heard it all before." He summoned them to his desk, where they confirmed his suspicion that they were listening because they had never before been told there would actually be Social Security for them. This was, Moynihan wrote in 1997, symptomatic of the fact that "as a people, we are simply turning away from government."

No, it was because they realized the Ponzi scheme would collapse before they reached retirement age.

Were Moynihan still with us, he, unlike today's mostly unreflective Democrats, would articulate why President Bush's proposal -- the explosive combination of progressive indexation of Social Security benefits and personal retirement accounts financed with a portion of payroll taxes -- is dynamite packed around the foundation of the Democratic Party's edifice of belief. That foundation is an ethic of common provision through government.

Progressive indexation -- larger benefits for the less affluent -- would mean that for the more affluent 70 percent of Americans, Social Security would be of diminishing significance as their affluence grows, with dwindling relevance to retirement planning. This 70 percent would be the portion of the population most able to take advantage of personal accounts. And it would possess more than 70 percent of society's political skills -- the will and ability to get the attention of politicians by articulating grievances and participating in politics by financial contributions and other means.

Progressive indexation is means testing politely labeled, and means testing, however labeled, is an attribute of welfare programs. Which is why in 1997 -- eight years before Bush's attempt to attract Democratic support by proposing progressive indexation to make Social Security more redistributive -- Moynihan understood why a combination of progressive indexation and personal accounts "carved out" of Social Security would repel Democrats. Moynihan wrote: "Once the great majority of citizens found that they would do better in the private investment part of this new system, support for the redistributive aspects of Social Security would quickly erode. It would become a residual relief program for the poor elderly, possibly turned over to the states as is done with welfare."

Moynihan had been dismayed by the 1996 welfare reform legislation, which he strenuously opposed but a majority of Democratic senators supported. The core of that legislation was repeal of a portion of the 1935 act establishing Social Security. The repealed portion -- Aid to Families with Dependent Children, a welfare entitlement without a time limit -- was, Moynihan said, "the oldest feature of the 1935 bill." It enabled the federal government to take over from states the responsibility for widows' pensions. "Do not doubt," he warned, "that Social Security itself will be next," that repeal of AFDC would be "the first step in dismantling the social contract of the 1930s, in which we undertook the care of the elderly, the unemployed, the children."

Moynihan favored personal retirement accounts for a reason unrelated to Social Security solvency -- for distributive justice, to provide an estate "for doormen as well as those living in the duplexes above." In today's parlance, Moynihan did not advocate the "carve out" account favored by President Bush, which would be financed by a portion of the individual's Social Security payroll tax. Rather, Moynihan and Richard Parsons -- now chief executive of Time-Warner; in 2001 co-chair with Moynihan of President Bush's Commission to Strengthen Social Security -- suggested "add-on" accounts: "These accounts could be financed by the individual worker voluntarily adding 1 percent of his pay on top of the present 6.2 percent employee share of the Social Security payroll tax. The federal government could match the employee's contribution with a matching 1 percent of salary, drawn from general revenues."

Add on is not significantly different from IRAs and 401Ks but if the Federal Government is going to provide matching funds, and if the employees can put in more than a trivial 1%, I might be able to support add ons. The best, IMHO, would be a combination of carve outs and add ons with the government providing matchine funds.

Former senator Bob Kerrey, the Nebraska Democrat who worked closely with Moynihan concerning Social Security, and David Podoff, an economist who advised Moynihan on Social Security and other economic and budget issues, stress that Moynihan's recommendation of general revenue was made when surpluses were projected "as far as the eye could see." Times change, and we see how far the eye can see. Which is a lesson for everyone debating "permanent" fixes of Social Security based on economic and demographic projections for the next 75 years. Whatever is done, or if nothing is done, to reform Social Security, it will be increasingly perceived as a welfare program, important primarily for the least self-sufficient minority. And the benefits it promised in 1994 will not be there when those young clerks who came to Moynihan's desk retire.

The system is progressive now, so to some extent it already is a welfare program. Bush's proposal just tilts the progressivity a little more, and provides for something for today's 20 year olds, who otherwise would find Social Security gone when they retire, after paying into it all their lives.

Debra J. Saunders editorialized in SF Chronicle blogged Is Dubya D.C.'s only adult?

I support private accounts, but not without a solid plan to pay for them.

Bush provided a plan to pay for them; he left 70% of social security payments going into the black hole Ponzi scheme, and only took 30% for persomal accounts.

This left Dubya at a low point, where many other Repubs would have bashed the Democrats for not even having a plan and then slinked on to another issue. Instead, Bush got serious. While 99 percent of Washington pols have been talking as if Americans have a sacred right to expect something for nothing, Bush backed a plan by a Democrat, lawyer and mutual-fund executive Robert Pozen, called "progressive indexing." Pozen's plan would maintain Social Security benefit increases for lower-income workers, while limiting increases for high-income and middle-income workers, by tying the growth in their benefits to a price index. The White House claims this plan would fix 70 percent of the system's projected shortfall.

Bush "definitely put his neck out and he deserves a lot of credit for offering a concrete suggestion for how to rein in benefits," said Zeeve. No lie. Meanwhile, the Democrats in Congress have spent the last two months acting as if a few tweaks would fix Social Security's woes. They still have no plan, and they still aren't leveling with the American voter.

That is because their plan is just to raise taxes, with the taxes still going into the so called "Trust Fund" which means they have even more money to spend now, and still leaves no solution for money to be available when today's workers retire.

The Concord Coalition has put together a series of issues briefs on just how close to collapse the system is. The organization notes that while Social Security "trustees say that Social Security is 'solvent' until 2042," what they mean is that the government has written IOUs for that amount without setting aside any money to pay it back. There is no trust fund. While the trust fund has accumulated trillions in IOUs, "that just means that the government will owe itself a lot of money." Money it won't have. Thus, after the year 2018, the federal government will have to find new money to pay expected Social Security benefits.

They are absolutely right.

In a statement last week, House Minority Leader Nancy Pelosi attacked Bush for saying the "unheard of -- that he did not intend to pay the Social Security trust fund back."

How could he pay a scam back. There is no money in the "Trust Fund", so he could not take anything from it that would need to be paid back

Pelosi also bashed Bush for cutting Social Security benefits for the middle class. As if everything would be hunky-dory without Dubya's plan. Don't take my word for it. As the Washington Post reported, under the Bush/Pozen plan, "workers earning as little as $35,000 a year would lose a quarter of their promised benefits by 2065, although their benefit under progressive indexing would be 11 percent larger than the check Social Security could afford to issue by then."

Democrats say they won't compromise with Bush unless he drops private accounts, but the voluntary nature of the Bush plan -- only those who want private accounts would have them -- is a compromise. Besides, shouldn't the Dems welcome a plan that would allow poor workers, if they sign on, to leave their savings to their loved ones?

They might have if they had been smart enough to think about it, but they were not.

Meanwhile, some Republicans are distancing themselves from progressive indexing lest they be associated with a cut in benefits for their constituents. They want private accounts without paying for them, to supplement government benefits without paying for them. As Zeeve sees it, Washington has become the land of "do-nothing Democrats and free-lunch Republicans." He would like to see a Social Security reform that cuts benefits and raises taxes.

If you ask me, Bush has introduced compromise to the equation by proposing cuts suggested by a Democrat, and proposing cuts that hit the GOP base. Still, that doesn't mean that Bush has finished compromising. It won't help if Bush is compromising alone. It won't help if compromise means, not each side giving something up, but each side getting what it wants, thanks to borrowing. If Democrats won't budge at all -- not even for a wealth-weighted plan that offers private accounts only to those who want them -- then the system will go broke. And if GOP pols won't agree to benefit cuts, or won't agree to a modest tax hike, then the country is sunk. Voters will be part of the problem, too. The left tells its partisans to demand that any reform leave out private accounts. The right tells its base to demand no new taxes. What voters should demand, says Zeeve, is "a return to adult leadership." That's the only way to win a solid reform.