South Carolina Ping
Posted on 06/24/2005 4:39:27 PM PDT by CHARLITE
WASHINGTON -- In recent weeks I had become increasingly glum about the prospects for Social Security reform this year (although I think in the long run the pro-reform movement will prevail). Thus, I couldn't get too excited by the release of Senator Jim DeMint's new plan. But I have to reconsider.
The basics of DeMint's plan are that it only uses the Social Security surplus to create personal accounts and it initially only puts treasury bonds in those accounts. In early 2008 an advisory board similar to the one that manages the Thrift Savings Plan will start adding other investment options.
Two things make me a bit more optimistic about DeMint's plan: (1) a press release from Minority Leader Harry Reid topping off a long string of such press releases this week; and (2) a press conference held yesterday by Brad Woodhouse of Americans United to Protect Social Security and Dean Baker of the Center for Economic and Policy Research to denounce the DeMint plan. That Reid's press release is a pack of distortions and contradictions and that the press conference was held before the DeMint plan was even released suggests that the anti-reform forces are nervous about this one.
And with good reason. The first benefit of DeMint's plan is that it calls their bluff on both treasury bonds and protecting Social Security. The DeMint plan forces Democrats and other anti-reform forces to answer the question: if the treasury bonds that are in the Social Security trust fund are such a wonderful investment, what is wrong with putting those bonds in personal accounts?
My guess is that the anti-reform forces will quickly try to change the subject. Next, because the personal accounts create ownership they do far more to strengthen Social Security than the current system. Under the current system, we have no ownership right to our benefits -- Congress could even fail to make good on our benefits by defaulting on the bonds in the trust fund. Congress would have a far more difficult time messing with personal accounts that were owned by millions of voters.
The DeMint plan enables the pro-reform forces to pose the question: what protects Social Security more, bonds held in some trust fund or bonds owned by millions of Americans?
The pathetic arguments contained in Reid's latest press release suggest that DeMint has boxed the anti-reform forces in. First Reid claims, "The DeMint Social Security bill allows investment in risky assets," but later adds,
Contrary to proponents' claims, the DeMint bill will not end the misuse of Social Security surpluses for other purposes. Under the bill, Social Security surpluses initially will be used to pay for other government programs in essentially the same manner as under current law -- that is, they still will be used to purchase Treasury securities, and the Treasury still will use the cash to pay for other government programs. After 2008, a portion of excess payroll taxes will continue to be invested in Treasury securities and used to support other programs.
If we make the not too heroic assumption that the those "risky assets" are not treasury bonds, then DeMint's plan does stop Congress from raiding the surplus, at least in part. Every dollar in a personal account invested in something other than a government bond is one dollar less that Congress has to spend. So Reid is either doesn't know what he is talking about or he is prevaricating. Take your pick.
Nor is it correct as Reid states that the DeMint "plan will add $1.7 trillion to the debt in the first 20 years." That debt is still there even if we leave Social Security in its present form; it's just piling up in the trust fund instead of being held by the public. If Congress were to implement DeMint's plan it would mean that the annual deficit would increase, unless Congress cut spending. Perhaps facing the prospects of more pressure for spending cuts is what has Reid so antsy.
Finally, the anti-reform forces are trying to claim the DeMint plan is more than just a first step. At the press conference yesterday Woodhouse griped, "It is more than the camel getting its nose under the tent. It's the camel getting its nose, its head, its hump, everything under the tent." But by limiting the personal accounts to only what is in the surplus and avoiding (for now) the question of solvency, the DeMint plan robs the anti-reform forces of two of their more potent weapons, benefit cuts and so-called "transition costs."
By making personal accounts the first part of Social Security reform it gives Americans a taste of what ownership of Social Security is like. Once that happens, it will likely be much easier to deal with questions of benefit formulas and account size.
So does DeMint's plan have what it takes to achieve a victory on Social Security reform this year? Given events of the last few months, it would be foolhardy to predict yes. But DeMint's plan will force those Senators who vote against it (or, more likely, vote to filibuster it) to defend the continuing raid of the Social Security surplus at the expense of protecting it with personal accounts. That's the best news the pro-reform side has had in a while.
David Hogberg is a senior research analyst at the Capital Research Center. He also hosts his own website, Hog Haven.
There's been quite a bit to like lately, hasn't there.
Good things come to those who are patient.
On the other hand, unless the media grows a conscience and does its job, voters will never hear about the hypocrisy and the anti-reform forces will not pay a political price for filibustering this bill.
Yes, it is the camel's nose, head and hump. If Bush can't get his plan through, this one will eventually end in a plan very like what Bush wants.
I'd rather see Bush's plan, but if this is the best that can be passed this year, it still will lead to the correct result eventually.
Excellent conclusion. I feel the same way, speekinout. Let's just get the camel's nose under the tent. The head and hump will definitely follow. This is URGENT. However, aside from a few speeches that the president has made to one or two groups, since his 2nd Inaugural, I don't think that he has made enough of a push to make sure that Americans understand the huge advantages to every working man and woman, of his plan.
The deliberate silence of the media is one explanation for how it is that after this long a period of time, people still don't seem to understand how important Bush's reform measures are. But he too must keep banging the drum on the issue, and I don't see that happening.
Can we say "Bully Pulpit?!"
Thanks for your bright comments, speekinout!
Char :)
How do we use a nonexistent surplus to to create personal accounts?
As I understand it, Social Security has always run a surplus. That surplus is shrinking as the median age is increasing. In about a decade SSA will be sending out more than it collects and the surplus will be wiped out pretty quickly.
Historically, our elected public servants have seen fit to "invest" the surplus in U.S. Government bonds...which puts a bond (an IOU) in the SS account and gives cash to the U.S. Treasury...which congress immediately spends.
The "surplus" only exists in the form of bonds which the U.S. taxpayers (through our elected representatives) have promised to pay. Once SS is no longer running a surplus the taxpayers will have to make up the difference by honoring those bonds.
The Social Security account alone (FICA collections less FICA payments) runs a surplus every year...and will continue to do so thru 2019. It will start running a deficit in 2020.
(Denny Crane: "Sometimes you can only look for answers from God and failing that... and Fox News".)
Contrary to proponents' claims, the DeMint bill will not end the misuse of Social Security surpluses for other purposes. Under the bill, Social Security surpluses initially will be used to pay for other government programs in essentially the same manner as under current law -- that is, they still will be used to purchase Treasury securities, and the Treasury still will use the cash to pay for other government programs. After 2008, a portion of excess payroll taxes will continue to be invested in Treasury securities and used to support other programs.
I'm not sure where Reid's quote ends but one thing is sure: Reid is correct! But is he telling the full story? Not really!
The key is the fact that there would now be ownership and therefore this debt would be monetized. No longer is the account gimmickry able to be perpetuated. Interest rates will move and people will now have property claims against itself...not government having claims on the government. This will force some fiscal responsibility, and either force the congress to spend less or to raise income taxes to offset all the revenue loss. Politicians will be further boxed into the "fiscal responsibility" corner and this is a good thing. The long-term positive effects will be numerous. The first two, off the top of my head, will be less future liability for the Social Security system and marketable securities that the American people now own...this should hopefully lead to people - people who fence sat or were originally opposed to the idea - to wish to take some further risks with these "now-owned" funds. Enter more reform!
SS began running a surplus when contributions were increased during the Reagan administration to cover anticipated shortfalls once the baby boomers start to retire.
Historically, our elected public servants have seen fit to "invest" the surplus in U.S. Government bonds...which puts a bond (an IOU) in the SS account and gives cash to the U.S. Treasury...which congress immediately spends.
Yes, and investing in TB will change that how?
The "surplus" only exists in the form of bonds which the U.S. taxpayers (through our elected representatives) have promised to pay. Once SS is no longer running a surplus the taxpayers will have to make up the difference by honoring those bonds.
That is the case no matter what the bonds are called. It is also true of the TBs bought by the Chinese to fund our current budget deficits, one day they will come due and will have to be paid with interest.
So, in other words, the government spends all the surplus now. If DeMint's plan is implemented, the government STILL spends all the surplus. The only difference is that before, the government holds the IOUs against taxpayers, and afterwards I'd hold the IOUs against taxpayers. But it does NOTHING to address the long-term solvency of the system.
No thanks. Unless there are private accounts with the ability to invest in securities other than federal government bonds, I'm not interested.
You are more optimistic than I. Initially it will make our debt "look" bigger than it "looks" now, but it will still be the same old debt.
Those T-bills will be in your name. You and your heirs will own them.
Big difference.
And a good start.
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