PRESIDENT BUSH HAS GOTTEN A lot of bad advice lately on how to promote Social Security reform, but none worse than the recommendation he cease talking up individual retirement accounts funded by payroll taxes. Oddly enough, this advice has come from both Republicans and Democrats. Republican senator Lindsey Graham of South Carolina says Bush should concentrate on ensuring the solvency of Social Security. Investment accounts, he says wrongly, have nothing to do with that. Meanwhile, Democrats insist they won't sit down and negotiate a bipartisan compromise until the president abandons the idea of using payroll taxes for individual accounts altogether. This advice would be entirely comical if it weren't so transparently self-serving.
Our advice is quite different. Rather than fall silent on personal accounts, the president should talk about little else. Without the prospect of giving every worker, no matter how poor, a chance to invest in and actually own financial assets, Social Security reform loses its innovative quality. It is bereft of any political appeal, especially to lower income workers. It's no longer even real reform but merely a tug-of-war over how much Social Security taxes are going to be hiked or how far benefits are going to be cut.
Democrats would love to fight on this terrain. It would reduce Bush to their level and operate to their advantage. If the argument is over raising taxes or cutting benefits, Democrats will always win by emphasizing an increase in the Social Security tax rate (now 12.4 percent) or lifting the cap on
income subject to payroll taxation (currently $90,000). Every poll or focus group shows that either of these is preferred to benefit cuts of any type. So imagine Bush in the position of arguing for slowing the growth of benefits or raising the retirement age. In either case, he loses politically and probably substantively as well.
But bring individual retirement accounts into the equation and everything changes. Forget today's polls that gauge the public support for these accounts as lukewarm. Touted heavily by Bush and Vice President Cheney and explained in TV spots, Social Security reform, Bush-style, will grow in popularity. Why? Because individual accounts offer something for nearly everyone. For the poor, reform provides an opportunity they otherwise would not have to invest in equities and acquire assets that are inheritable by their children. They would become stakeholders in America, and it would cost them nothing beyond the chunk of their income they're already paying in payroll taxes. And for everyone, rich or poor, it would mean a chance to boost their retirement income over what the current Social Security system would provide. Given the last 100 years of financial history, they can expect their investment income to grow more rapidly than money left in the Social Security system.
At my age (48) personal accounts may not mean much. However, for the younger generations coming up, I think they will be a real boon to their retirement options and it's vital to the president and the GOP that they make the case to the under 40 crowd.
Why the AARP opposes personal accounts is no mystery to me. None of their current members, or members they'll gain in the next few years, will be affected by personal accounts. It's obvious that rather than do what's best for future generations, they've decided that their only hope for political power is to keep promoting the Dems bad ideas and ensure that future generations are dependent on government handouts. If people become more self-sufficient, they won't need the lobbying power of the AARP and similar organizations, and that would certainly put a hit on the old incoming dues balance.
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