September 03, 2004

Social Security Reform

Holman Jenkins does a little accounting roundup in the WSJ Political Diary today on behalf of the President's plans to allow workers to keep and manage a piece of their Social Security.

Now that Social Security private accounts are on the menu, the first hurdle is explaining the budget to the media. Point One: A promise to bondholders increases the deficit and the debt. A promise to future retirees doesn't.

Point Two: That's the kind of accounting peculiarity that, in the private sector, leads straight to the hoosegow. Thus the reported national debt is about $3 trillion, but the unfunded liabilities of Medicare and Social Security alone are $11 trillion.

On TV and on his web site, ABC News Political Director Mark Halperin yesterday insisted that explaining how the White House planned to finance the transition to private accounts should be the test of the president's seriousness last night. OK, let's go there!

The White House itself first put $1 trillion in play as the transition cost, but when measured in light of the $14 trillion indebtedness above, the figure is less impressive than it sounds. More importantly, we're talking about a "refinancing" here -- that is, trading an IOU held by future Social Security beneficiaries (due in, say, 30 years) for an IOU held by bondholders (due in, say, 30 years).

No change in the real net fiscal position of the federal government would be required, just an exchange of invisible (to the uninformed public) debt for visible debt. Better yet, done right, the deal could be a fiscal win-win: Future retirees would have a bigger nest egg (plus ownership and control of how they spend it down, rather than the government dictating terms of their bet with the mortality tables). Meanwhile, the real indebtedness of the federal government would actually go down, not up.

That's why fussing about the transition costs misses the point. Media watchdogs should be more concerned about whether the Bush administration strikes a deal that reasonably shares the gain from being allowed to invest payroll taxes at a competitive rate of return between the individual beneficiary and the Social Security system.

Here's the devil question: How much of his traditional Social Security entitlement will a worker give up in return for the right to channel a portion of his payroll taxes into a higher-yielding private account? The Bush administration's failure to get real reform of Medicare in exchange for a drug benefit is not a promising precedent here -- but then Mr. Bush this time would no longer have to worry about being re-elected.

This would be a great second term legacy, and probably could be done -- if only by a second-termer.

One joke we should've heard at the convention: Ozzy Osborne saw W at the gridiron dinner a few years ago and said "Mr. President, why don't you grow your locks like mine?" W replied, with perfect timing, "Second term, Oz. Second term."

We have much to look forward to. (Yes, that is a little post-convention hubris.)

Posted by jk at September 3, 2004 11:35 AM
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