Conservative Lies about Social Security
by Ari Armstrong, December 22, 2004
Many conservatives deserve a spot on the naughty list for supporting big government and misrepresenting President Bush's proposed reform of Social Security.
Not every conservative who backs Bush's plan is guilty of willful distortion of facts: many simply misunderstand the issues. But some of the leaders rationalize national control over personal savings because, they imagine, that's the best we can hope for. And so they use free-market rhetoric to support a fundamentally statist proposal. They sweep inconvenient facts under the rug and hope their more principled supporters won't notice. They use half-truths to promote widespread confusion.
The left is no better. Many commentators on the left claim -- without any evidence -- that Social Security is the most successful national program of all time. That it "successfully" redistributes huge amounts of wealth cannot be disputed. But the efficient operation of a fundamentally immoral and economically indefensible program cannot be deemed a success in broader terms. Many on the left also pretend that the so-called "trust fund" will help shore up Social Security. Of course, the alleged "trust fund" consists entirely of government bonds, which can be repaid only out of general taxes. Raising general taxes to pay off the promised benefits of Social Security hardly improves the lives of working Americans. The imagined "trust fund" is merely an accountant's gimmick. Yet I expect as much from the left: the right should know better.
Many conservatives promote four distortions about Social Security and mandatory, regulated accounts. They incorrectly claim the accounts are "voluntary," that they are controlled by workers, that they are private and consistent with free markets, and that they are integral to the reform of Social Security.
Michael Tanner of the Cato Institute claims the accounts are "completely voluntary for current workers." What does this mean? It means that workers can choose to remain in Social Security completely or redirect some of that money to the accounts. But two options dictated by the national government do not constitute a "completely voluntary" system. A voluntary system means workers can keep that money and do with it whatever they wish.
Dick Armey of the ironically named "FreedomWorks" writes, "Luckily, President Bush is already a strong supporter of Social Security reform through Personal Retirement Accounts (PRAs). This plan allows workers to divert a portion of their payroll taxes into a personal account that they own and control..." But workers "own and control" the accounts only to the extent that Big Nanny in Washington, D.C., thinks best. Thus, the accounts are really owned by the national government, to be used by workers only at the discretion of national politicians.
A December 16 AP story quotes Bush, "There will be reasonable guidelines that already exist in other thrift programs that will enable people to have choice about where they invest their own money, but they're not going to be able to do it in a frivolous fashion." The AP article suggests these "thrift programs" are "Thrift Savings Plans," under which "[f]ederal workers have five investment options, including government and corporate bond funds, a stock fund that tracks the S&P 500, an international fund and other stock funds." Five whole options!? How magnanimous of the national owners of our money.
Tanner also describes ways for the national government to control "our" accounts. "Funds deposited in individual accounts would be invested in real capital assets under a three-tiered system" (page 8). He proceeds to explain the regulations of these tiers. Likewise, the President's Commission on Social Security describes proposed national controls over the accounts.
If freedom works, why does Armey promote statism?
The next point easily follows: mandatory, regulated accounts are not part of the free market. They are not "privatization," if that term means letting workers control their own money. Mandatory, regulated accounts are the opposite of free markets and real privatization. Yet Armey absurdly claims, "Proponents of big government are sure to fight against PRAs..." No, it is proponents of big government who endorse such accounts. The fact that the leftists also promote big government is of little consolation.
The final error is the assumption that mandatory, regulated accounts are somehow integral to the reform of Social Security. They aren't. Any opt-out plan that lets workers pay less into Social Security in return for fewer benefits can operate without the mandatory, regulated accounts. Bush could as well simply let workers keep that money, to spend however they choose, free of national restrictions. The mandatory accounts are superfluous, and thus they constitute a new national program of forced savings subject to national controls.
Armey fears some members of Congress will try to "insert some bad measures into a reform bill" that "could include benefit cuts, accounts that are too small to do any good, or even a tax hike!" Armey assures us, "The truth is that we don't need any of these things to make Social Security reform work." Oh, really? Jack Kemp takes the same line, yet he's not quite so naive as Armey. Conservatives rightly oppose increasing the amount of wealth taxed directly by Social Security. Yet Kemp intimates the transition costs will be funded through debt, as Bush has also suggested.
In reality, Bush's opt-out plan is a cut in promised benefits. Specifically, workers who partially opt out will receive fewer benefits in the future. (Tanner's plan has workers who opt-out receiving no benefits from the Social Security tax.) If workers could simply keep this money, they'd be better off. The problem is that workers who opt out will not retire for many years. Thus, in the short run, the promised benefits of Social Security will continue to expand, even as the opt-out plan reduces the revenues of the tax. So how does Armey propose to cover the shortfall? (He doesn't.)
Tanner is candid: "Where, then, will the transition financing come from? Ultimately, this is a decision for Congress, which will have to weigh the utility of various financing mechanisms, including debt, taxes, and reductions in current government spending" (page 9).
Armey ignores the fact that debt is really just a form of future taxation -- it is just as harmful to the economy as a direct tax. Moreover, he declines to mention to his readers the strong liklihood that, of the three options Tanner mentions, Congress is most likely to choose debt. Tanner wishes Congress would cut other spending -- and I wish Santa Clause would bring me a new BMW. (Yes, we should push Congress to cut spending, but this is a distinct issue from the reform of Social Security.)
Not all conservatives have their heads in the sand. Fred Barnes calls for cuts in promised benefits. He writes, "The White House intends to deal with solvency by, as best I can tell, proposing to change the way benefits are calculated. Under current law, this is done by a 'wage index.' But since wages grow faster than inflation, so do benefits. Absent reform, benefits will be 40 percent greater in real terms in 2050. This is a major source of the system's impending insolvency. The White House would scrap the wage index in favor of a price index, which would calculate benefits by the rate of inflation."
Promised benefits should be cut -- but this can and should be done without imposing mandatory, regulated accounts. If conservatives actually cared about protecting economic rights and limiting the size of the national government and the scope of national power, they would loudly proclaim the virtues of cutting promised benefits -- and reducing the Social Security tax correspondingly. Today Social Security crushes poor and middle class workers by seizing a combined 12.4% of their income. Nothing would help the working poor and middle class more than a substantial reduction of this onerous tax.
For additional analysis, please see Social Security: Collected links.