Got this alternative from my leftiest friend via email. It's definitely different.
Monday, May 9, 2005
EDITORIAL COMMENTARY
Taking Ownership
The president should define a complete
Social Security reform program
By THOMAS G. DONLAN
"POLITICS AIN'T BEANBAG," but often it's
like football. The team that spends the most
time on offense will usually win. In the
game to reform Social Security, President
Bush has been playing defense. Because he
hasn't published a detailed package, this
has allowed his opponents to define the
major points in whatever ways suit their
special interests. The president then
defends by denial, which leaves audiences
with little confidence that he really knows
what he is talking about.
For months, the president has been stumping
the country to drum up support for Social
Security reform, but the idea is losing
ground in the national polls. It's getting
close to the time when any but the most
stubborn politician has to give up. "The
people have spoken, blast them."
President Bush, however, is one of the most
stubborn politicians in recent memory. He
may create private accounts and cut the
growth of future benefits by sheer force of
will, whether or not the people approve.
Remember his opening salvo about his having
earned political capital in the election and
planning to spend it on Social Security
reform? The remark conveyed determination
bordering on hubris, which he reinforced
with a later comment that he had touched the
third rail of American politics and
survived.
Not yet, he hasn't.
The president favors letting workers under
some age around 50 or 55 devote some small
percentage of their Social Security taxes to
personal accounts, that could be invested in
corporate equity and debt. He has also made
it clear that in return for the opportunity
to earn market rates of return on such
investments, those who choose to have
personal accounts will give up some
percentage of their Social Security
retirement benefits.
This is all right as a broad concept, but it
lacks specific information to give citizens
reasons to support it. Some say that God is
in the details. Others say it's where the
devil lives. Either way, it doesn't count as
touching the third rail of politics until
the president delivers or requires one of
his advisory commissions to deliver a clear,
complete, well-defined program to achieve
solvency and ownership in retirement.
In our dreams, we would like the president's
opponents to come up with something explicit
as well, such as advocacy of the wage tax
increases and lock-box financing that would
be necessary to create sound advance funding
for Social Security benefits that grows with
the wage base. The president has not forced
them to defend their goal.
Real reform would change the whole system,
not tinker with it. President Bush would
have the advantage of offering a complete
retirement program for an ownership society,
in contrast to the slumgullion of welfare
programs we have now.
There should be a reasonable safety net for
those elderly in great need; it should
establish a small base on which better-off
people can build a comfortable nest egg; it
should not bankrupt the country with new
borrowing or stagnate the economy with
higher taxes.
Real retirement reform ought to build on the
existing 401(k) and IRA savings plans so
that Congress and President Bush could
create individual retirement investment
accounts for every American. The president's
personal accounts aren't really private;
they amount to a mutual fund held in trust
by the Social Security Administration.
The first thing to put in the private
accounts should be a special issue of
inflation-protected government bonds
representing the present value of all those
pseudo-promises of Social Security
retirement benefits. Reflecting the terms of
today's Social Security benefits, these
bonds would be good only for the life of the
person to whom they were issued. As with
Social Security retirement benefits, death
would cancel unredeemed bonds.
This would give Americans the good news that
the government's full faith and credit at
last stands behind their benefit promises,
as it should, and it would make visible the
enormous hidden liability for those
payments, so we could face up to our real
financial condition.
People who wish to rely on the government
for their benefits would do nothing at all;
the Treasury would redeem their bonds on the
monthly Social Security schedule. Those who
believe they could do better in the market
could sell some or all of their special
Treasuries and choose their own investments,
with or without the help of an investment
adviser. (To make a market for these unusual
contingent bonds, financial institutions
would have to pool them and slice the stream
of payments from them, just as Fannie Mae
and Freddie Mac do when they when they pool
mortgages and slice the stream of contingent
payments from them. In large numbers, deaths
are considerably easier to forecast than
mortgage repayments.)
After creating the universal retirement
accounts and stuffing Treasury bonds into
them, the Bush administration and Congress
could shut down the Social Security benefit
system. The 12.4% Social Security wage tax,
half levied on employees and the other half
on employers, would become a mandatory
deposit into each worker's individual
account. The tax has been disguised as a
pension contribution since Social Security
began; at last this would be true.
There would be a big hole left in the budget
to pay off all those bonds, but not a new
hole. This is a hole we have been digging
for decades and pretending not to see. To
fill it will require spending cuts and new
revenues from an overhaul of the tax system.
Editorial Page Editor Thomas G. Donlan
receives e-mail at tg.donlan@barrons.com1
Copyright 2005
Dow Jones &
Company, Inc. All
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