Friday, April 29, 2005

Democrats Should Welcome New Twist on Bush's Social Security Plan

In President Bush’s by-the-talking-points news conference last night, one statement stood out. Bush said:

By providing more generous benefits for low-income retirees, we'll make this commitment: If you work hard and pay into Social Security your entire life, you will not retire in poverty.

The White House clarified that what the President is proposing is private accounts combined with a "sliding-scale benefit formula” that would mean lower Social Security payments for future middle- and upper-income retirees than they are currently guaranteed.

Would the Democrats view this new idea as the chance to craft a compromise? Not a chance. Predictably, Democratic House Minority Leader Nancy Pelosi and Senate Minority Leader Harry Reid immediately released a statement saying the President’s plan would gut benefits for middle class seniors and they will continue their opposition.

This smacks of obstructionism for obstructionism’s sake. Lower income workers have a much more difficult time saving for retirement, but middle class earners and certainly upper class earners have extra income and should be expected to have the responsibility to save for themselves. And all earners would still have a chance to put into private accounts, supplementing their guaranteed benefits.

What if the private accounts weren’t compulsory but worked like 401k accounts. Those that put in get some sort of government match. Those that don’t put in can keep their money. Combine that with sliding-scale guaranteed benefits and you’re on to something. A just society should not let its seniors live in crushing poverty. But a just society has no obligation to write checks to seniors that can already afford a comfortable retirement.

The President’s sliding-scale idea provides the opening to craft a plan that could shore up the system, guarantee benefits for the most needy and provide private accounts to those who want them. With some Democratic-initiated modifications, this could actually be the best idea for saving and reforming the system.

Perhaps when the numbers are run, the President’s plan will fall short. But the Democrats should still be able to recognize an interesting idea when one is proposed. By flat-out rejecting the idea of a sliding scale, the Democrats are once again showing that they’re completely unable to get their thinking out of the New Deal/Great Society paradigm.


At 11:50 AM, Blogger Grand Inquisitor Fnord Moco said...

I'm always leery of 'sliding scale formulas', especially because this leaves a huge argument for the wealthy to not be required to contribute. If they're ineligible for benefits it is hardly 'just' that they pay in. Second, sliding scales rarely keep up with inflation, or inflation gets redefined in such a way as to reduce benefits. Witness the new inflation index suggested to 'fix' SS today or the Pell grant program. If the very wealthy are allowed to withdraw and the sliding scale slides down, the program becomes a government subsidy for the poor instead of a security net for all.

The 401K idea could be a good one, but two hurdles have to be crossed. First, the govt can't match wages. They'd have to structure some other incentive, like using decreased tax levels on money in retirement. Second, there is always going to be an Enron out there somewhere. People at companies like Enron had $ millions in 401K and were set to retire comfortably, and are now destitute. Without Social Security they would starve. If the 401K benefit is an additional option on top of SS, fine, but there still needs to a safety net. This could come through mandating the types of investments that the retirement accounts could be put in, but if I'm restricted to Tbills I may as well have my money in SS. In order to get the 15% returns my 401K gives me, I have to be willing to take risk, and that's not what Social Security is about.

At 12:43 PM, Blogger Alan Stewart Carl said...

Great points. I would imagine a system where all are still required to pay into social security. But the bulk of the guaranteed benefits would go to lower-income workers. Is this fair? In so much as anything else is, I think. I mean, the wealthy will still be living a better retirement and whatever they don’t “get back” from Social Security they will be getting back from all the tax-deferred or tax-free investing they will have the opportunity to do because of their greater earnings.

I don’t see why, in principle, I shouldn’t be allowed to invest my money—as long as we still have a system that prevents senior poverty. The social security system is by no means fair the way it is—particularly to my generation who will likely pay in much more than the current system can ever afford to pay us. I would think partial privatization and a sliding scale would make it more fair in a universal sense. Those that can afford risk can take it. Those that can’t afford it will still get plenty of guaranteed benefits.

I’m not an economist and I’m simply conjecturing here. I haven’t been much of a supporter of privatization, mainly over fears of its affordability and its impact on lower-wage workers. But this is the first idea I’ve heard that makes me think Bush is serious about finding a workable solution. Maybe I’m wrong. But I still don’t understand the Democrats’ reaction—current systems are not always the best systems. And I’d prefer the Democrats give this a chance for a real debate.

At 11:05 PM, Anonymous Anonymous said...

Take a peek at what you pay into SSI.

I believe your very much mistaken in claiming that your SSI taxation will never add up to your contributions.

Our president seemingly favors the wealthy.

Our country needs SSI tax on income...including income above 90k annually.

Those that are earning over 90k are granted tax benefits.

Its the lower and middle-income American workers and consumers that benefit big business.

Think about it.

Big business should return the favor.


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