Vermont Woodchuck at New England Republican celebrated Christmas by posting a monologue blasting opponents of Social Security privatization.
I feel somewhat obliged to point out that there is a logic error with one of the points he raises. It’s a logic error that has polluted much of the debate in ‘06 on Social Security and private accounts:
Social Security guarantees to raise your taxes. The FICA payroll tax is put into U.S. Treasury Bonds. This “lockbox” the Dems say is protecting Social Security. Even if, and that’s an elephantine IF, the principal is there to redeem the bonds, the interest assuredly won’t be in place. The government has no money of it’s own; the interest will come from future taxes. Depending on your other pension income, the Govt. is taxing 15% of your Social Security disbursements at this point. What’s to stop them from raising that level? Did they ask you the last time?
As a standalone point, I agree with that position.
However, it overlooks one significant concern with private accounts as they have been proposed. Simply diverting funds away from the OASDI trust fund into personal accounts doesn’t do anything to improve Social Security’s financial situation.
If anything, it worsens the situation by accelerating the day when Treasuries must be cashed to cover the Social Security checks going out the door.
That’s the fundamental problem with private accounts as they have been proposed by the administration and its GOP allies. It’s been presented as THE way to improve Social Security’s outlook. It’s not.
I have no problem with private accounts being a part of an overall Social Security reform package. There are many good arguments for their establishment, and there are arguably good examples of such structures existing in other social insurance programs around the world.
However, they are only OK as part of a solution….and a small part at that. It’s fiscally irresponsible to consider such a change without addressing the overriding issue of projected FICA receipts not being enough to cover expected expenditures in the future….or of figuring out how to fund the increased deficit that will appear when the OASDI trust fund is tapped.
2007 isn’t an election year. It’d be an excellent time for politicians in Washington to actually attempt to approve some manner of a solution.
Of course, with the ‘08 Presidential campaign apparently already in full swing…I’ll be shocked if anything significantly constructive happens in ‘07.