Mr. Paul's Social Security "Fix"

Last week, Wisconsin whippersnapper congressman Paul Ryan formally introduced a revised bill to "fix" the Social Security "crisis" (there is no crisis, remember?). Mr. Paul and his partner-in-crisismongereing, New Hampshirite Little John Sununu, laid this egg last year. But the scaled back on the plan, and now they're trying in earnest to sell Egg v2.0.

Let's take a look at it. Yes, I'm going to get a little wonky. And, yes, it's important to note that I'm not an economist. But it's my blog. Here's how the the plan works:

But the Ryan plan, co-authored by Sen. John Sununu (R-N.H.), is different from most other plans circulating in Congress because it combines large personal accounts with no Social Security benefit cuts and no tax increases.

How do they pay for the plan?

The two lawmakers say they would rely in large part on savings in other government programs to both shore up Social Security and fund the upfront costs of creating individual accounts.

Seems like a miracle, eh? We're gonna solve a deficit problem by spending less money. Woo-hoo! Brilliant! I wish I had though of that. Maybe then I could be a congressman!

Okay, that's not fair, since I only quoted the spare newspaper summary. Here's how Mr. Paul's website sells it, under the heading of "Financing the Transistion":

• The short-term Social Security surpluses now projected until 2017 are devoted to financing the transition – instead of fueling other government spending

First, keeping Congress's grubby mitts off of the Social Security surplus is not necessarily a bad idea. I mean, I think it would be kind of cool if we took those surpluses and put them in a safe place, like a, um, whaddyacallit, a lockbox.

Okay, no, seriously: If the Congress didn't have that $145 billion (according to the Social Security Trustees), it would have to find it somewhere. I know that, given the current state of affairs, that's not all that much--less than 10%. On the other hand, it could seriously impact the budget deficit if, as Mr. Paul wants, that $145 billion buys private accounts for people. And how much private account would it buy? Given that there are roughly 145 million workers in the economy right now, that's about $1000 for all of us. So between now and when I retire, that would give me, um, compound the interest, carry the one . . . $77,000. My golden years will be great.

• A national spending limitation measure would limit the growth of Federal spending to 3.6% per year for eight years, with growth in subsequent years at 4.6%, consistent with current CBO projections. The savings coming from the difference from projected spending is maintained until all short-term debt issued to fund the transition is paid off in full

I could live with this. Trwo things, though: One, good luck with that. Two, if we can curb spending, we can direct that reduction into shoring up the Social Security trust fund and completely bypass the whole risky account scheme (more on that later).

• One of the basic assumptions of the Ryan-Sununu plan is that increased investment through personal accounts will result in increased tax revenues to the General Fund. The Ryan-Sununu plan recaptures a set portion of these projected revenue increases and dedicates them to the Social Security Trust Fund

You know what they say about when you assume, right? I'm also waiting for the accolades from the investment-industrial complex about the new high taxes. Besides, this is one of the things that rankles me most about private accounts: The big Wall Street investment firms will be raking in the fees--and those fees are our tax money. I'd rather not give my tax money to someone as profit.

But there is more to this than just an outrageous transition plan. Again, from Mr. Paul's website:

From 2006-2015, the Ryan-Sununu legislation would allow workers to devote to tax-free personal accounts 5 percentage points of the current 12.4% Social Security payroll tax on the first $10,000 in wages and 2.5 percentage points on taxable wages above that. Starting in 2016, workers will then be able to shift 10 percentage points of the current 12.4% on the first $10,000 in wages and 5 percentage points on taxable wages above that. Once fully phased-in, this creates a progressive structure with an average account contribution among all workers of 6.4 percentage points.

A couple of problems with this. First, if a significant portion of workers enroll the cost of this plan considerably exceeds the current surplus. Trimming spending and praying for higher corporate taxes may help, but let's face it: Under Mr. Paul's plan, we're going to be doing some deficit spending. This is not necessarily a big deal--we're deficit spending now--but why do we need to front-load the deficit spending when we can wait, say 25 years, when, jeebus willing, we're not busy fighting two wars and struggling to keep the economy afloat in $55-a-barrel oil.

Second, this part of the plan runs into a later part of the plan: "The official score [by the "Chief Actuary"] shows that by the end of the 75-year projection period [. . .] the [payroll] tax would be reduced to 5.18%." Oooookaaaay. So tell me how I'm going to put ten percentage points of my payroll tax into a private account if the payroll tax is only 5%. Of course, that's 75 years into the future, when everything will be completely different, and, for all we know, the Trust Fund won't run out.

More:

Workers will be enrolled in a “life-cycle” fund that automatically adjusts the worker’s portfolio based on his or her age - moving near-retirees into safe, government-backed bond funds. Workers may stay with this “life-cycle” fund or choose from a list of five index funds similar to those found in the federal Thrift Savings Plan (TSP).

Oh, yes, the TSP. Not even the hand-picked audiences at Bush's staged events buy into the TSP. And, come on, Mr. Paul, if you're going to give us private accounts, then at least let us invest them the way we want.

After all, Mr. Paul, your website also notes that "The accounts are backed up by a guaranteed minimum benefit equal to Social Security promises under current law." So then, if the stock market fails us--I say if because, as you know, that's never happened before--then we will be deficit spending anyway. And, really, who are you kidding: You're basically admitting, with this safety-valve feature, that private accounts are inherently risky. And Social Security Insurance is not supposed to be a risk.

Let's face it, Mr. Paul's plan does nothing to address the solvency questions--such as they are--that simply adjusting federal spending won't do. When the surpluses run out, we can either panic or adjust our spending habits. When the Trust Fund runs out, we can either panic or adjust our spending. And there are very simple things we can do to stretch out both the surpluses and the Trust Fund, like upping the the income limit on the payroll tax. That's not an absolute fix, of course, but combined with otherwise prudent fiscal policy, Social Security will last, safely and in tact, for decades to come.