Thursday, January 06, 2005

Santa Claus is coming to town (but lock up the silver)

The latest NY Times article about Social Security drops hints that the plan to have a 4% payroll tax diversion, funded at least in principle by cutting the rate of benefit growth, is in big trouble politically. As in: crisis story not selling, benefit cuts likewise not selling, Democrats firmly opposed, Republican right think it doesn't go far enough, Republican moderates quaking in their boots that they will get massacred politically on it.
But help is on the way (ha ha):
"One group of Republicans is pressing the administration to make the accounts as big as possible, preferably permitting the investment of all or nearly all of the 6.2 percent levy on wages that individuals contribute to Social Security ....
"Many of the same Republicans have also come out forcefully against a proposal to deal with Social Security's long-term financial problems by reducing the part of future retirement benefits that would come from the government .... [Presumably - this is me interpolating here - the idea here that those opting in lose a fraction of their guaranteed benefits while those who stay in the traditional system lose nothing.]
"[T]he approach has been embraced by some ... high-profile Republicans, who say it would be a bold move to harness the power of markets to address social and economic issues and would in the long run leave the nation in much stronger financial condition."
Matt Yglesias does a good job of nailing this on the merits:
"Um...awesome! How about the "Yglesias Total Fiscal Freedom Plan." Under this plan, workers will be permitted to contribute not only their 6.2 percent payroll tax, but also however much income tax they happen to pay, to personal retirement accounts. The government, meanwhile, will fund itself with the 6.2 employer portion of the payroll tax, along with the corporate income tax, and fees for fishing licenses on national parks."
Whoever in the Administration is talking to the Times does not like this plan, but Bush has not decided. Political logic tells me that this may be where they are headed. It fits the underlying philosophy (dating back to Barry Goldwater's 1964 suggestion that Social Security be made voluntary). And, with the other plan simply not making a sale, it permits the claim that no one loses benefits involuntarily.
A remaining detail is that they need to sweeten it up so lots of people actually will opt in. The way to do that is by making the trade of surrendered benefis for size of account extremely favorable.


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