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Monday, April 18, 2005

The White House Argues With Itself on Privatization and Social Security Solvency

Following up on this post where Treasury Secretary Snow says that congress has hurt the economy by spending the Trust Fund and that privatization does not help with Social Security solvency, here are contrary statements regarding privatization and solvency from the White House web pages.

In Ensuring America's Prosperity on the White House Web Site, it says personal accounts will "solve the financial problems of Social Security once and for all…”:

The President wants to strengthen Social Security for the 21st century. His fiscally-responsible plan calls for reforms that … solve the financial problems of Social Security once and for all, and give younger workers a chance to save in personal accounts for their own retirement.

But, as noted in this recent post, Treasury Secretary Snow in Ask The White House says:

…personal accounts are an integral part of any solution in order to make the system more fair for future generations, but you’re right – other changes will be necessary to achieve solvency for the program…

Snow is correct, privatization does not help with solvency. The statement on the White House web site that privatization is a "...once and for all" solution is wrong and disagrees with other statements on their web site.

The Snow page on the White House web site is recent (April 15), the other page is more dated. But this is not simply a case of the White House being sloppy about updating the White House web pages as the administration changes its story to reflect the justification of the day for personal accounts.

If that were the case, then Special Assistant to the President for Economic Policy Chuck Balhous would not have disagreed with Snow on his entry on the White House web page on April 5 where he says:

...The Social Security actuary’s projections, therefore, are that the net effect of the personal accounts will be to increase the benefits that workers expect from Social Security...

In fact, Blahous is asked this directly and says privatizationwill not make things worse, then implies that privatization is one of the potential solutions:

John, from Arizona writes:
The current emphasis on setting up private accounts to help social security does nothing to address the real issue of solvency. In fact it makes the situation much worse by further reducing the amounts workers pay to the amount retiree's receive. Why not address the issue of solvency, and the tough decisions necessary to solve the issue, before any discussion of allowing private accounts?

Chuck Blahous
John, first, the accounts as the President has proposed them would not make the situation worse in any respect. As workers contribute money to their accounts, they would also shift some of their benefits from the traditional system to the personal account system. In that sense, the overall finances of the system would be largely unchanged. But in another sense, the situation would be improved – a portion of the system’s future liabilities would already have been met, reducing the share of the burden to be borne by our children and grandchildren...

...Personal accounts are also a very important component of the solution simply because it is virtually impossible to otherwise fix the system in a way that is fair to younger workers. Absent the personal accounts, the only measures available to fix Social Security’s finances would involve tax increases or reductions in promised benefits, each of which would worsen the treatment of younger workers. The personal accounts enable a solution to be fair to younger workers by improving their benefit expectations.

The question John from Arizona asked was why the administration isn’t addressing solvency rather than wasting time pushing privatization. The answer is carefully worded, but nowhere is the solvency issue addressed directly. And when he says "Absent the personal accounts, the only measures available to fix Social Security’s finances would involve tax increases or reductions in promised benefits..." isn't he falsely implying personal accounts will help with solvency?

If they are going to mislead people into thinking solvency is a major problem, then they should propose a policy that addresses the exaggerated problem.

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    Posted by on Monday, April 18, 2005 at 07:30 AM in Economics, Social Security | Permalink  TrackBack (0)  Comments (0)

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