Bernanke Says Social Security Reform Must Include Private Accounts and Ensure Solvency
Lots of interesting comments here. First, Bernanke, speaking on behalf of the White House, has effectively ended any chance that the House plan will be enacted. He also appeared to oppose White House National Economic Council Director Allan Hubbard who supports the House plan as a first step in the reform process. Second, Bernanke says that the clawback of 3% may need to be reduced.
According to Bernanke the White House will insist on a reform proposal that contains both solvency provisions and the creation of personal accounts. While this brings some rationality to the debate over and above what we’ve heard from DeMint and his ilk, and the intent appears to be to find a way to get reform moving again, this looks like it will stall things even further, particularly given the reactions from others in the GOP to Bernanke’s remarks. If so, then Bernanke's remarks give the White House the political cover to say they advocated both solvency and private accounts but congress could not deliver due to obstructionist Democrats:
Aide Says Bush Wants Solvent Social Security, By Jonathan Weisman, Washington Post: The White House's top economic adviser said yesterday that President Bush will insist that any Social Security legislation include a fix to the program's long-term financing problems, undercutting House leaders' efforts to craft a compromise that ignores the solvency question. … Asked if a solvency fix was inviolable, Bernanke said yes. The comments are significant because House Republican leaders have sided with conservatives who say Congress should settle for a modest plan to establish small private investment accounts financed from Social Security's temporary cash surplus. … But Bernanke did not give them the green light. "The president is committed to two elements," Bernanke said. "One is restoring the solvency of the Social Security system, and the second is creating personal retirement accounts for individuals. The legislative process is a long and complicated one, and we will be working with Congress to see what comes out, but we would want to see both of those elements in a final program."
Conservative economists were disappointed by the statement -- and somewhat skeptical. "I don't think the White House is drawing any lines in the sand, these comments notwithstanding," said Rep. Paul Ryan (R-Wis.), a Ways and Means Committee member and proponent of the accounts proposal. "If that's their position, they will be stubborn and this whole thing will go down," Lawrence A. Hunter, chief economist at the conservative Free Enterprise Fund, said of Bernanke's statements. "Solvency is dead on arrival." … White House National Economic Council Director Allan Hubbard appeared to accept that strategy last week on CNBC when he called the approach "a very important first step." … But Bernanke said firmly that he would recommend the president stick to his "basic principles" and oppose a plan that does not address the system's core problems.
Bernanke ... did suggest the White House is open to one change in the Bush proposal. Under the president's personal accounts plan, a retiree's defined Social Security benefits would be reduced by one dollar for every dollar contributed to an account, plus an interest rate of 3 percent above inflation. ... Even some allies of Bush have suggested that is too high a hurdle. Bernanke appeared to agree. "With real interest rates quite low, the offset rate may unduly penalize personal accounts," he said. "And we may need to think about whether the offset rate should be adjusted somehow to market levels."
Posted by Mark Thoma on Tuesday, July 19, 2005 at 01:26 PM in Economics, Social Security |
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