RUSSERT (2/27/05): Here's the headline in today's Washington Post, Senator Santorum: "GOP May Seek A Deal On Accounts," meaning private accounts, Social Security, saying that the president is being told by House Republicans, forget about private personal accounts out of Social Security payroll taxes. Do something like Social Security plus, investment accounts outside of Social Security. Are you open to that?Santorum said, Everything's on the table. When Biden got his turn to respond, he unwisely enthused:
RUSSERT: What do you think, Senator?Add-ons are a good idea, Biden said. After all, they were Saint Pats trillion-dollar baby.
BIDEN: Good idea. Pat Moynihan is back. He hadn't gone. That was Pat Moynihan's idea and I think it's the correct idea. And the presumption that Social Security can't meet its obligations rests on the notion that the federal government will default, something it's never done in 220 years, on an obligation, on Treasury notes, IOUs, just like the IOUs Japan has and other countries have in terms of buying our Treasury bonds. And so I don't think we'll default. And I think it's a good idea.
What was wrong with Bidens reply? First, a relatively minor point—Moynihan did not propose add-ons to traditional Social Security, although the entire Democratic establishment is now pretending otherwise. In 1998, Moynihan proposed the same kind of private accounts Bush is proposing (for details, see below). But lets leave that history to the side. What was wrong with Bidens enthusiasm for the concept of add-on accounts? To understand that, you must understand the logic of this slippery proposal.
First, a point of simple logic—an add-on account is only added on if traditional Social Security is fully preserved before the adding is done. After all, if future SS benefits are cut, then any additional savings account isnt an add-on—its a replacement for the lost benefits. In short, before add-on savings accounts make sense, Congress will have to solve future funding problems with traditional Social Security. First, Congress has to make sure that future promised benefits are secure. Then, it could figure out how to create additional savings accounts. (Although his focus is somewhat different, Paul Krugman makes roughly this point in his New York Times column this morning.)
But is there any chance that this will happen as long as Bush is president? On its face, the idea is absurd. First, it would take a substantial tax increase to address the future funding shortfall in traditional Social Security. Then, it would take another large tax increase to fund any add-on accounts. Its hard to imagine why Dems like Biden think such a plan could occur.
How unlikely is the scenario? On February 14, Salons extra-hopeful Farhad Manjoo discussed the idea of add-on accounts. Why did Manjoos ideas sound so good? Because they are plainly impossible:
MANJOO (2/14/05): Bush's private-accounts plan is complex, risky and expensive, and it would require cuts in benefits to Social Security. It's no wonder that politicians aren't lining up to support him. But [Norm] Ornstein says the president can win back Republican apostates and even sway Democrats by incorporating the best of past Social Security proposals. Those include eliminating the wage cap on payroll taxes, reducing benefits for wealthy people, and creating private accounts as an add-on to Social Security, as outlined by Gene Sperling, Bill Clinton's economic advisor. Another politically easy move would be to institute a program known as KidSave, which would give every child born in America an investment account seeded with a loan of $2,000.File all this under pie-in-the-sky. Manjoo pictured a two-part solution. First, everyone except the wealthy would get full future Social Security benefits. Beyond that, wed create those add-on saving accounts, just as Sperling has proposed. But what was wrong with this pleasing picture? Simple! Sperling proposes use of a reinstated estate tax to finance his add-on accounts. In short, for Manjoos pleasing plan to occur, Bush would have to do two things. Hed have to approve a rise in the cap on payroll taxes. And hed have to approve reinstatement of the estate tax. Do we have to spell it out? This will never happen.
So what was Biden talking about when he enthused about add-on accounts? As Krugman explains in this mornings column, add-on accounts are a perfect way for Dems to get hustled by Bush. Almost surely, any such add-on accounts would turn out to be replacements—replacements for cuts in SS benefits. Dems should stop this silly utopian posturing and spend their time trying to accomplish one task—the safeguarding of future SS benefits, the benefits Bush wants to cut.
Why did Biden enthuse in this way? Again, say that one key word: Unprepared. He didnt know the cost of Bushs private accounts. He didnt know when the future shortfall occurs. He used Bush Lingo when he said that the trust fund has already been spent. And he seemed to be lazily unprepared when it came to this slippery subject too Big Major Dems are snoozing hard as they fumble their way through this fight. Bidens performance was a pure mess—and his lazy response about add-on accounts was one more part of the problem.
STANDING WITH PAT: All Good Democrats knows to pretend that Moynihan proposed add-on accounts. But heres what Saint Pat wrote in Newsweek about his proposal. His co-author was Bob Kerrey:
MOYNIHAN/KERREY (7/3/00): The needed changes are four in number. Correct the consumer price index to obtain an accurate measure of inflation. (Benefits are indexed to inflation.) Bring all newly hired state and local employees into the system to avoid overly generous payments to those workers who take part-time jobs. Tax benefits in the manner in which private pensions are taxed; that is, Social Security benefits would be taxed to the extent that a worker's benefits exceeded his contributions to the system. Add three years to the computation period in the benefit formula, to reflect the fact that workers will have additional years of earnings as life expectancy increases. Result: actuarial balance for 75 years.Note the key parts of this proposal. Moynihan proposed reducing the payroll tax from 12.4 percent down to 10.4 percent. Workers could use that two percentage points to set up private—sorry, personal—accounts. And oh yes—future Social Security benefits would be reduced as we corrected the consumer price index to obtain an accurate measure of inflation. Guess what? This is exactly what Bush has proposed, except Bush now seems to be leaning toward using four percentage points for private accounts, not the previous two. By the way, Moynihan even wrote an angry column in the Washington Post, complaining that [i]t would be unforgivable to label this privatization. Result? The New York Times James Dao used the solons pique to batter repulsive Candidate Gore. Gore was being nasty and negative when he used the hateful term, Dao wrote, right on page one of the clowning Times (see THE DAILY HOWLER, 1/24/05, with links to earlier reports). Daos ridiculous pair of front-page reports were a classic in crackpot Gore-bashing—and they came to you thanks to Saint Pat. Today, Every Good Democrat knows to pretend that nothing like this ever happened.
That is the medicine. Here is the reward. With these measures in place, the trust fund will no longer need the extra 2 percentage points added to the payroll tax in the 1970s. The rate is now 12.4 percent, and only 10.4 percent is needed. We can offer employees a choice about what to do with the extra 2 percent, including depositing it in a personal savings account.
No, Moynihans proposal doesnt strike us as an add-on. Future benefits would have been reduced; those private accounts would have been a replacement. But now, all good Democrats know to pretend that Sainted Pat proposed something different. Biden bungled endlessly on Meet the Press, and he misstated this point too.