Bush’s Proposal: Slow Death for Social Security

· Social Security

The Washington Post spells it out — Bush’s Social Security proposal from last night’s press conference is designed to curtail Social Security for all but the poor.
On the surface, a Democrat like me might look at this new proposal and say: what gives? The President’s actually looking out for the poor over the rich. But then you have to ask: why? It’s just so…un-Bush-like.
Here’s one theory. By and large, Americans consistently oppose wealth-redistribution. If Social Security morphs into a clear cut wealth-redistribution plan, support for the program among those who get little or nothing out of it will quickly wither.
So now that Republicans have learned that Americans aren’t ready to give up on the program in 2005, how do they kill Social Security over the long-term? A little judo. Turn it into a program that, down the line, the vast majority of voters making over, say, $100K, have a reduced stake in.
It’s just a theory. Or maybe I’m being too cynical and GW really does heart the poor.

Private Ponzi Accounts

· Social Security

[I realize I have willfully ignored nuances by the dozen to simplify the point. But I have decided to overlook all that.]
We could have a stock market, and it could be basically a free-market. People would buy stocks when they thought the economic value was worth the price. But, free-markets will never satisfy the avatars of Capitalist Winnerism. So now you want the prices to go higher than the economic prospects, You’d give the government two missions:
Mission 1: Make stock ownership more lucrative than its economic value justifies.
Mission Accomplished! Money you make from owning stocks is substantially undertaxed,
–It is not taxed every year. If you have a savings account, the interest you earn each year is taxed each year. Then if you wish, you can reinvest your after-tax interest by leaving it in the account.
–With ‘capital gains’ you can reinvest the whole 100% of what you made this year, just by holding on to the stock.
–Dividends are taxed very lightly or not at all.
–When you do sell the stock, the capital gains are taxed very lightly or not at all.
Mission 2: Well. we’ve puffed up the profits from owning stocks. But it’s still not enough. The money still has to be drawn in. What if it could be pushed in?
Suppose the government gave out trillions in a special kind of “stock-dollars,” marked “To be used only for purchases of stock.” Now we’re in business! Now we are pushing vast amounts into the stock market that its economic value was unable to attract. (We saw some of this with 401(k)’s in the 90’s.) Stock prices soar. Forget economic value. Everybody wins!
Each year. the new inflow of special stock-dollars drives up the stocks you bought last year. Everyone is making money. It could keep on building credibility for years.
There are several points at which this can start to come apart. But the inexorable nemesis is this. People who for years had been only paying in now start to retire, and they are taking out. But whom will they be selling their stocks to? The newest members and the newest stock-dollars. But soon, demographically, too many people are taking out and not enough are paying in. The people paying in see this. They shift their payroll taxes into traditional Social Security. If it’s allowed, people with private accounts will transfer their funds and stop adding to them.
By that time, you may be one of those who held a whole lot of stock at the outset, and you may have bailed out at the peak. But for those who held on to the private accounts, and made bad decisions, and are now elderly and impoverished, we’ll need to have a new program to sustain them.
We could call it “Social Security.”