Fred Barnes: Republican Insecurity (A party divided cannot reform Social Security)

THERE'S A WORST CASE SCENARIO for Social Security reform that haunts the White House. It goes like this. With great fanfare, President Bush announces his plan for overhauling Social Security, creating private investment accounts for every American worker, and making the system solvent. He touts his proposal in his inauguration speech, the State of the Union address, and his budget. But when Bush unveils an actual bill--probably in February, maybe later in 2005--congressional Democrats scream that it would cut Social Security benefits by 40 percent. Worse for Bush, a number of prominent Republicans agree and criticize the president's plan, especially the benefits change. The result: Social Security reform is dead on arrival on Capitol Hill.

Democrats are a problem. On modernizing Social Security, most of them are reactionary liberals, committed to preserving an antiquated system. But at the moment, Republicans are an even bigger problem for the White House. For a reform measure to win approval in Congress, Republicans must be united. True, the conventional wisdom in Washington is that entitlement reform requires bipartisanship. With only a handful of Democrats likely to sign on, however, that won't happen. So that leaves the matter with Republicans, and they are anything but together.

They're divided on the two biggest reform issues: how big a chunk should be carved out of payroll taxes for individual investment accounts and whether the growth of Social Security benefits should be curtailed. In the past, the White House suggested it might settle for 2 percent accounts. In other words, workers could invest up to 2 percent of their income using money from the 6.2 percent they already pay in payroll (FICA) taxes. Now the White House is expected to go for accounts as large as 4 percent. Or--and this is under discussion--the president could opt for a phase-in, leading to 6 percent accounts in 10 years.

Most Republican reformers insist on large accounts. The bill sponsored by Senator John Sununu of New Hampshire and Representative Paul Ryan of Wisconsin would instantly create 6 percent accounts. And they have a strong political argument. Since there's going to be a huge fight to get any private accounts at all, why settle for a piddling 2 percent? Why not go whole-hog and get what you really want? Sununu and Ryan have significant ties to the White House, where they've made this argument.

One can imagine a compromise among Republicans on the size of the accounts. A compromise on the more contentious issue of how to treat Social Security benefits is harder to imagine. The White House intends to deal with solvency by, as best I can tell, proposing to change the way benefits are calculated. Under current law, this is done by a "wage index." But since wages grow faster than inflation, so do benefits. Absent reform, benefits will be 40 percent greater in real terms in 2050. This is a major source of the system's impending insolvency. The White House would scrap the wage index in favor of a price index, which would calculate benefits by the rate of inflation. This would save trillions and still allow the president to say his plan would guarantee the current level of benefits adjusted for inflation--but no 40 percent increase in benefits. Bush, Rove, and others in the administration believe it would be irresponsible to reform Social Security but not its financing. For one thing, Wall Street would dismiss reform. "Wall Street wants to see some spinach with the dessert," Bush aides say.

That's not what Democrats will say. In fact, John Kerry declared in the presidential campaign that Bush's "January surprise" would be a 40 percent cut in benefits. As we've noted, there's some truth to that, though reduced benefits would be offset by investment account earnings. Of course, sticking with the current rate of benefit increase would require massive borrowing or a huge tax increase or both. Republican senator Lindsey Graham of South Carolina advocates 6 percent accounts paid for by boosting the cap on wages subject to payroll taxes from $87,900 to $200,000. This way, Democrats might support reform, he says. But Bush last week rejected any payroll tax hike.

Is this getting complicated? I'm afraid that can't be avoided. What's simple, though, is the argument of Republicans who want Social Security reform to consist of investment accounts alone. It's a purely political argument: Should Bush propose to slow the growth of benefits, Social Security reform is doomed. It just won't pass. Yes, the Democratic argument that Bush would cut benefits is demagogic. But it will generate sufficient opposition to kill any chance of reform. AARP, by the way, is already opposed.

The two camps reach beyond the White House and Congress. On the president's side is Glenn Hubbard, the former chairman of Bush's Council of Economic Advisers. Hubbard recently briefed Bush on reform issues. Others favoring action on the solvency side are influential economist Kevin Hassett of the American Enterprise Institute and ex-Bush economics adviser Larry Lindsey. Both are part of White House discussions. Opposed are Republican bigwigs Jack Kemp and Newt Gingrich, plus Steve Moore and Peter Ferrara of the Club for Growth and an unknown number of members of Congress, all of whom prefer to push for investment accounts alone. Critics call this second camp "free-lunchers."

Oh, yes. There's a third camp, those who would do nothing on Social Security because insolvency won't be a threat for a decade or more. House Majority Leader Tom DeLay has privately questioned whether it makes sense to tackle Social Security now. After all, Republicans worked for years to gain control of Congress. Why jeopardize that by provoking a fight over Social Security?

Sorry, but the fight is unavoidable. Bush made it so by emphasizing Social Security in his speech to the Republican convention last summer. At the time, he rejected advice that he scale back his plans for reform. Now he has to find a way to enlist wary Republicans. Rove has talked to both Kemp and Gingrich. Others, like Moore, may join Bush if that's the only way of getting private investment accounts. When six senators and 12 House members were briefed recently, a senior Bush aide said he "didn't sense there were a lot of free-lunchers in the room." So achieving Republican unity is possible. It's also necessary.

Both major political parties perpetuate The Big Lie regarding Social Security. The Big Lie has existed since Social Security's inception. The debate over "privatization" is only the latest version of The Big Lie.

The Big Lie is that Social Security is some kind of retirement savings plan.

It is NOT.

Social Security is a socialist income redistribution scheme, nothing else.

Those who are working are taxed to provide a "safety net" for those who are less fortunate.
Originally, this meant retirees and surviving dependents.
Congress has, of course, complicated it far beyond this over the last 65 years.

But one fact remains: it is NOT a "savings plan", it is an income redistribution scheme.

A major facet of The Big Lie is that "we have to do something so that Social Security remains solvent in the future.

Poppycock!

In today's age of modern computerization, the computation for operating an income redistribution scheme that remains perpetually solvent is quite simple:

This month's total SS tax receipts = Next month's total SS tax disbursements

The only change necessary to the current system is that monthly payments to eligible recipients would be a variable amount, not fixed.

THERE IS ABSOLUTELY NO NEED FOR A MULTI-TRILLION DOLLAR "TRUST" FUND!!!

Congress should NEVER have been permitted to confiscate so much money from the American People in the name of The Big Lie. This fund is nothing but a slush fund that Congress raids to pay for other government expenditures. If private sector employers did the same thing with their companies' pension funds, they'd be placed in prison. The "privatization" plan proposed by Bush is merely an attempt by Wall Street brokerage firms and financial institutions to get in on the scam: grab a portion of a constant revenue stream (guaranteed by taxation) from which they can skim their commissions.

The American People need to wake up and put these liars and thieves in prison.

DeLay's motives for opposing reform may be better than anyone else's.

DeLay is a major supporter of the FairTax, a 23% National Retail Sales Tax.

The FairTax repeals all payroll taxes along with income, corporate, and capital gains taxes.

As a result of the repeal of the payroll tax, SS collection and payout will become part of the general budget. Among other things, this removes some of the "scared cow status" that SS enjoys.

But beyong that, betting rid of the payroll tax paves the way for a far superior system, a system that at least partially de-links benefits from wages. That system would be similar to a 401(k).

Basically, this is what would happen:

1. Benefits payments would be made to all those who are currently recieving them.

2. Most of the leftover money would be equally distributed into every American's SS account. A rough estimate would be around $2,000 per person per year.

3. The remaining funds would be used to provide matching funds up to a certain amount. Government contributions of $1 for every $10 contributed privately up to $25,000 per year. Those who made more money would contribute more, but the contributions would NOT BE COMPULSORY. Of course, every dollar contributed would in effect recieve a MINIMUM 10% return on investment (ROI), so they would be extremely popular.

4. A cutoff age would need to be established to determine who would fall under the old benefit system and who would fall under the new benefits system. The best option would be to establish a three-bracketed system:

4a. In the first bracket, all those born in 1965 and earlier would fall under the old system, unless they opted to switch to the new system and forgo all benefits accrued thus far.

4b. In the second bracket, all those born between 1966 and 1975 would receive 1/2 of the benefits of the old system, but would be limited to 1/2 half of benefits of the new system system ($2,000 per year would still be contributed into their account, but the government would only provide $1 for every $20 of private money contributed by the individual up to $25,000). All those in this bracket could of course opt to switch to the new system and forgo all benefits accrued thus far.

4c. In the third bracket, all those born in 1976 or later would only be able to participate in the new system.

5. The investment mechanism would be similar to that currently available to Federal employees, the Thrift Savings Plan (TSP). For more on the TSP, go to http://www.tsp.gov

Encourage individual savings & investment as opposed to manic consumption on consumer debt, make the Social Security system obsolete.

The savings & investment provide venture capital for new industry, upgrading infra-structure of the economy their by increasing productivity and comensurately higher standards of living at lower costs to the individual as well as provision against retirement with individual ownership instead of dependance on whim of government.

A Taxreform bump for you all.

If you would like to be added to this ping list let me know.

Thomas Hobbes, Leviathan makes a strong case that it is fairer to tax people on what they extract from the economy, as roughly measured by their consumption, than to tax them on what they produce for the economy, as roughly measured by their income.

John Linder in the House & Saxby Chambliss Senate, offer a comprehensive bill to kill all income and SS/Medicare payroll taxes outright, and provide a IRS free replacement in the form of a retail sales tax with taxfree investment and savings:

H.R.25, S.1493
A bill to promote freedom, fairness, and economic opportunity by repealing the income tax and other taxes, abolishing the Internal Revenue Service, and enacting a national retail sales tax to be administered primarily by the States.
Refer for additional information: http://www.fairtax.org, http://www.salestax.org & http://www.geocities.com/cmcofer/ftax.html

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I WANT OUT!