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Thursday, June 23, 2005

We'll Need DeMint to Pay for This Proposal

I’ve done quite a bit of writing about Social Security at this site so it might surprise you to learn that I almost never go to SocialSecurityChoice.org. The reason is simple. On the few occasions I have ventured there, what I see posted irks me greatly, and then I feel compelled to rebut the misleading post du jour. Today, at the behest of PGL at Angry Bear I ventured over there. And just like the times I’ve visited in the past, I can’t help but rebut the top post by Andrew Roth. It concerns the DeMint Social Security reform proposal:

The DeMint Proposal - Stop the Raid on Social Security Act, by Andrew Roth:

How It Works:

  1. Saves the surplus in voluntary personal accounts – the only true lockbox
  2. Invests funds in government bonds initially
  3. Stops the raid on the surplus – no more secret spending
  4. Provides 100% current benefits
  5. No payroll tax increases

What It Accomplishes:

   * First step toward permanent solution
   * Ends Congress’ free lunch – forces government to recognize future obligations
   * Makes immediate down payment on long-term reform

Just The Facts:

   * Prevents Congress from raiding over $792 billion between 2006 and 2016
   * Rebates 2.2% of taxable earnings in 2006, allowing medium-earners ($35,000/year) to save over $770
   * Invests in government bonds initially; offers other options later
   * Combines account and traditional benefits to meet current promises
   * Reduces Social Security’s long-term liabilities by $2.4 trillion

My post yesterday on Samuelson began with “Where do I start?” Those words echo again as I read this. So I’ll follow the advice of the always intelligent Mary Poppins and start at the beginning.

How it works

1. The claim that personal accounts are a lockbox is misleading. I explain the reason in this post: Luskin is Wrong: Personal Accounts Do Not Protect Benefits. The post says "This is the standard lockbox argument for private accounts. Having had the solvency foundation crumble, this is their last resort, that the lockbox will prevent the government from spending your money. But it doesn’t, and closer inspection undermines this argument as well. Let’s take a numerical example..."
2. The personal accounts are to be invested in government bonds. Are these bonds the worthless promise Bush has been talking about? Why aren’t they proposing investing in private bonds? With government bonds, personal accounts are still financing the rest of government. In addition to the points in 1, what kind of lockbox is that?
3. What secret spending? Isn’t it public? Is congress spending money and not telling us? The real issue here is accountability and trust and what Roth's post tells us is that the GOP has neither – hence the call for a “lockbox” that isn’t.
4. 100% current benefits? There is no free lunch. Period. Quoting from this report on the proposal: “Another GOP staffer familiar with Tuesday's scheduled event said the participants will acknowledge that redirecting surplus Social Security funds will create budget problems elsewhere.” Something somewhere will have to be cut or taxes will need to be raised.
5. No payroll tax increase? That’s fine, I’m in agreement with that. But how will this be paid for? Will benefits be cut or will taxes be raised? Those are the choices. Which will it be? As the WP article notes: “The strategy is controversial because it would create new budget problems. Either the diverted money would have to be replaced with new taxes, or Congress would have to slash programs now funded by Social Security's excess payroll taxes.”

Then the post goes on to claims about how they end the free lunch and so on. I see no reason to continue. Unless one of you has a question about something at SocialSecurityChoice.Org in the future, I don’t see much point in going back. Friends don't let friends read propoganda.

    Posted by on Thursday, June 23, 2005 at 03:02 PM in Economics, Social Security | Permalink  TrackBack (3)  Comments (27)

          

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