Jack Kemp Tells White House to Drop Insistence on Social Security Solvency Reform

There’s trouble for the White House on Social Security reform, particularly with editorials such as the one below questioning the White House position on this issue.  Pressure is mounting to drop their insistence on reform addressing solvency.  So far, they haven’t signaled that they will:

To GROW the Majority, by Jack Kemp, Copley News Service:  A couple of weeks ago, I pointed out that President Bush has a golden opportunity right after Labor Day to advance the ownership society by repealing the death tax and giving working men and women the opportunity to own personal retirement accounts, which would both get a better rate of return and be inheritable by their families. The administration's general position on both issues is well known - it supports both - but where it stands on the legislative strategy remains a mystery. That's a real challenge but a great opportunity. It is particularly challenging where Social Security is concerned because the president's advisers have insisted that any personal-accounts bill also must guarantee permanent solvency, a simple political impossibility this year. If the president hopes for a legislative success on Social Security, it is essential for him to clear up the mystery. Now is the time to go on record enthusiastically in favor of making a down payment on solvency by stopping the raid on Social Security and devoting payroll tax surpluses to starting personal retirement accounts, an idea being promoted by the Leadership and Ways and Means Committee members in the House and introduced by Jim DeMint, R-S.C., in the Senate…

And there’s also this:

A revamp for Social Security plan, by Tami Luhby, Newsday.com:  In what would be a stinging defeat for President George W. Bush, the House of Representatives will likely cast aside the administration's Social Security proposal, according to experts from two think tanks close to the debate. Instead, the House Ways and Means Committee appears set in the coming weeks to offer a plan putting only surplus Social Security revenues in private accounts, they said. Such a bill would not make the system solvent longterm nor allow workers to contribute to private accounts - two pillars of Bush's plan. It also lacks Democratic support. A Ways and Means spokeswoman said only that chairman Bill Thomas (R-Calif.) is still formulating his plan. Taking the lead in forming Social Security legislation in Congress, the committee is looking at the watered-down proposal because of stiff Democratic opposition and a lack of unity among Republicans about Bush's plan, said Michael Tanner, the Social Security expert at the right-leaning Cato Institute. … Bush wants to allow workers to put part of their payroll taxes into private accounts and, to make the system solvent, cut benefits to future retirees. But he has failed to rally many Americans to his cause.

Asked about the surplus-funded accounts, Bush spokesman Trent Duffy said they "do some very good things." He also, however, noted Bush's goals, which include solvency…

For further discussion on the merits of the proposal Kemp, Tanner, and others are promoting, see Another Social Security proposal I don't like, But I Can't Follow the Money, Breaking Down S.1302:  Private Accounts with No Solvency On Top, We'll Need DeMint to Pay for This Proposal, and Concerns about the latest Social Security proposal.

[Update:  Here's a better link to the Kemp editorial - no registration required.]

Comments

[Bruce Webb]

I'm late so I'll make this short.

The numbers don't run for lower income workers. At least no one has ever put a plan on the table that takes comparable numbers for workers making near minimum wage and showing how they would fare. From the very beginning Private Accounts have been sold on fear and the message "something is better than nothing". Well there is still quite a bit of "something" in the current system and it is incumbent on privatizers to bring their own numbers to the table.

Expain precisely how people up and down the income scale would come out on this, that is all.

There is a tendency on the economic right to want to have it both ways. When it comes down to setting individual compensation for CEO's 'Greed is Good'. When it comes to Free Trade, or National Savings or Social Security we are expected to step up and do what works for the nation as a whole and not calculate what it means for the individual.

Well that is not good enough anymore. Show me the money. Explain why a single mother making minimum wage shouldn't boot your ass out of office because you eliminated the only source of retirement security she is likely to ever have.
Bring numbers and show your work.

They never do. Because they can't.

[Chris]

I'm not sure what you guys are reading. It sure looks to me like Kemp is telling Bush to press on with reform, not drop it. They just advocate taking it one step at a time while Bush still wants to fix everything at once. Good for him. It's not even September he should still push for solvency and accounts until the last possible moment.

[Mark Thoma]

Chris - There's been a big fight over this issue ever since Bernanke announced the White House would insist upon both private accounts and solvency. Shortly after the announcement, the NRO published a piece going after Bernanke and there has been a barrage of in-party political pressure on the White House ever since. Now, the White House has to decide if it is willing to cave into this pressure and flip-flop from a position it took not all that long ago.

The political problem is that reform was always sold as a means of dealing with solvency - that has been the primary sales point. If solvency is dropped, it will be hard to explain the reason for the proposal.

But I suspect the real reason is that Beranke is being honest about the merits of the DeMint proposal. Read the commentary from Vox, Dead Parrots, or William Polley, none of which can be accused as left-leaning (which is why I used those links), or of James Hamilton who I view as neutral. The proposal does not even do what its supporters claim, it does not lock anything up, and it actually harms solvency. Bernanke understands this very well and sees, I think, an insistence on solvency reform as the means of ccomplishing something that can actually be touted as an accomplishment.

In any case, there is a big dispute within the GOP over this issue and that is why this editorial and commentary are noted.

[Bruce Webb]

"The political problem is that reform was always sold as a means of dealing with solvency - that has been the primary sales point. If solvency is dropped, it will be hard to explain the reason for the proposal."

Exactly right. Without "crisis" privatizers lose their selling point. Privatizers are in the same boat as flat taxers, not surprising because they are mostly the same people. There are plenty of working people who pay no federal income tax at all, a point that economic righests delight in bringing up when it serves their argument but simply don't want to hear when the debate turns to flat tax. And there are a lot more people than that pay 15% and 18% only on a portion of their incomes, and I have yet to see a serious flat tax proposal that didn't come in above those levels.

Flat taxers like to tout the simplicity of their system "you could do your taxes on a postcard" while expecting everyone else to close their eyes to simple reality: lowering the top rate saves the wealthy boat loads of money, while most working class people can get away with the 1040EZ which is pretty much as simple as the postcard they are touting.

There is no way to set a flat tax that doesn't shift the tax burden down the income scale. Which is why Forbes, Kemp et al never come clean on what the rate would have to be or what services it would cover. When people discover it means losing their mortgage interest deduction or paying tax on the value of the medical care they get at the Veterans Administration they begin to wonder "Is this a good deal for me?". And of course it isn't.

Privatizers and flat taxers have a common enemy. It is called median household income. Any "solution" to the tax system or to Social Security which causes a net transfer from the bottom half to the top half is subject to the simple question "What is in this for me?" Which in an era of soaring CEO compensation is a perfectly fair question. If 'greed is good' why would workers possibly accept proposals for flat tax or private accounts that cut right into their take home pay or scheduled retirement benefit?

My favorite example to illustrate this was Eastern Airlines back in the (I believe) eighties. Management went to workers and explained that without wage concessions from the three main unions the airline would go under. They got some huge amount by selling the concept of "Shared Sacrifice". Whereupon they turned around and awarded a full 10% of the savings to themselves as bonuses. In their minds they had saved the company $800 million and deserved something for a job well done. They were caught flat-footed when the unions went ballistic. What part of "Shared sacrifice" were they missing here? Management ended up returning the bonuses but little then or now shows that they learned the fundamental lesson that just because you are running the show doesn't mean you are the show.

Kemp loves private accounts because one, they fit his personal economic and political philosophy, and two, they work really, really well for people in upper income brackets. Forbes loves flat taxes for the same reason. Where they come up short is in understanding that in a democracy votes count (outside Ohio and portions of Florida) and that given honest numbers you have to have a pretty strong argument to sell that the lower 70% need to make an economic sacrifice to benefit the upper 5%. Putting H&R Block out of business or trying to sell the concept that you will feel so much more satisfaction knowing that you Own that Private Account even though it actually returns less than the current system in the end just won't cut the mustard. At least not once people are presented honest numbers.

Kemp, Forbes, Cato, Tanner, Club for Growth each and everyone is insistant that they can sell the sizzle without anyone realizing there is just not enough juicy steak to go around. Bernanke to his credit seems to grasp that that is just the path to the Third Rail of American Politics. Passing any form of private accounts that doesn't address solvency is a one way ticket to the biggest elephant barbecue this country has seen since 1974.

Here is a simple challenge to Flat Taxes and Privatizers: Divide the country into quintiles by income and show us exactly how your proposal works for each 20% segment. Any proposal that comes in below the 60% level is at mild risk, because of income disparities in voting behavior. Any proposal below 80% means bring your own basting sauce to the barbecue. You can leave your Postcard and your Ownership Society at home. Show Me the Benjamins.