CREDIT WHERE CREDIT'S DUE:

House Call: SOCIAL SECURITY LIES. (Noam Scheiber, 11.24.04, New Republic)

The obvious sticking point in privatizing Social Security is how you finance the transition from the current system--in which today's workers fund the benefits of today's retirees--to a system in which workers save partly for their own retirement as well. The problem is that any dollar you divert to fund private accounts is one less dollar available to pay for what remains of the existing system. So the burden is on privatization advocates to explain where they will get the money to bridge the gap.

Social Security wonks distinguish the various plans floating around Capitol Hill by the degree to which they acknowledge this financial hurdle. At one extreme are so-called free-lunch plans, like those sponsored by Representatives Paul Ryan of Wisconsin or Clay Shaw of Florida, or Senator John Sununu of New Hampshire. These create private accounts while guaranteeing that no one will receive fewer benefits than they do today. Proponents intend to finance this arrangement through huge borrowing (as much as $7 trillion over the next several decades) or vague budget cuts, or some combination of the two. At the other end of the spectrum are the tough-love plans proposed by representatives like Arizona Republican Jim Kolbe and (recently defeated) Texas Democrat Charlie Stenholm, who want to finance the transition with deep cuts in Social Security benefits and modifications to the payroll tax. In the middle are plans like those of GOP Senator Lindsey Graham, which rely on substantial benefit cuts but also some slightly dubious budget savings from measures like closing corporate tax loopholes. The different plans require infusions of anywhere from $750 billion to nearly $4 trillion to pay for the initial decade of the transition, during which time no benefits would be cut.

As a general rule, the more honest the accounting (i.e., Kolbe-Stenholm), the more draconian the cuts to the current system. Which means that, given the political reality, the most honest proposals are the ones least likely to be enacted.

Just take it off budget and treat it as savings--you recoup the $2 trillion you spend up-front down the road. There's nothing honest about treating the reform as only an expenditure.

Posted by Orrin Judd at November 24, 2004 11:06 AM