A Stitch in Haste

Yesterday I blogged the following:

[The President] said that the benefit schedule would be changed such that poor workers get more benefits for their taxes than "the well off." Um, we already have that. It's called "progressive redistribution." Someone who pays twice as much Social Security taxes gets far less than twice as much in benefits (and pays taxes on those benefits to boot). Is the Administration proposing making the system even more progressive? More details please...

Well, thanks to the White House website and various bloggers, most notably Peter Mork, I now have those details. The progressivity proposed by the President regards growth in benefits after retirement rather than determination of benefits before retirement.

Let me explain. Up until the day a person retires his FICA taxes translate into a fixed benefit formula. That's the progressivity I said already exists: two otherwise identical workers who are the same age, work the same number of years, retire on the same day, etc., but where one earned twice as much as the other and paid twice as much in Social Security taxes receives far less than twice as much in benefits on the day they retire. We can call this "accrual progressivity."

The President's proposal, also known as the "Pozen Plan," refers not to progressivity in the accumulation of benefits, but rather to a new progressivity in the indexing of the growth of those benefits. Our two hypothetical retirees may receive different benefits today based on their different tax burdens over their working lives, but their benefits currently grow at the same percentage rate after they retired, based on the average growth in wages in the country.

The Pozen Plan changes that. It calls for benefits of lower-income retirees to grow faster than benefits for higher-income retirees after retirement. This is a new post-retirement progressivity that supplements the accrual progressivity already built into the system before retirement.

Viewed in isolation, the Pozen Plan might not seem so insidious. Everyone's benefits increase over time after retirement, just at different rates. And given that there is a very real and very imminent Social Security crisis, something simply has to be done. Right?

But on the other hand, the system already incorporates progressivity. So this isn't "progressivity." It's "progressivity squared."

And Social Security benefits are subject to federal income tax, which is itself progressive. Progressivity cubed.

And the plain language of the President's remarks suggests the wage cap may be scrapped. Progressivity to the fourth power.

And don't forget the Alternative Minimum Tax. Progressivity to the fifth power.

Keep racking up the exponents and, asymptotically you merely get the Penny in Your Pocket Rule.

Tell me it's necessary. But don't dare tell me it's fair.

It's been quite a while since I blogged about Social Security reform, mainly because there's been nothing to blog about. Congress has been busy with more important matters, like square dancing around judicial nominees ("seven on a side, all jump the aisle, nominees been waitin', too long a while, grab your partner, dosey-doe, time for a compromise, here we go..."). Oh, and Terri Schiavo and lynching apologies, not to mention taking vacations.

Anyway, I've grown hopelessly pessimistic about true reform and especially about private accounts over the past few months, mainly because of the utterly pathetic way the Administration has been marketing their ideas. I'm ambivalent about the Pozen plan -- it makes an already extremely soak-the-rich progressive redistribution scheme even more so (I have previously described the Pozen plan as "progressivity squared"), although politically it probably makes a lot of sense.

And now there is word that Congress has given up on any Social Security reform until further notice.

Anyway, today over at Government Bytes, Ross Kaminsky (who also maintains his own blog) sums up nicely the current state of affairs:

The blame for the current situation lies squarely with President Bush and his advisers on Social Security who have spent far too much effort talking to people about investment returns and when this line crosses that line instead of emphasizing inheritability, choice, fairness and even the basic human dignity involved in controlling the results of one's own labor.

Exactly. I have often said that the White House should reduce the Social Security debate to the following idiot-proof (and liar-proof) talking points:

--The "trust fund" is a fraud. A piggy bank full of IOUs from yourself to yourself is worthless. Yet that's exactly what the "trust fund" is.

--The system starts losing money in 2017, give or take. The government will have to make up that shortfall, and there are only two ways to do so: raise taxes or increase the deficit. Delaying reform only makes matters worse.

--Stop using the b-word! Saying Social Security will go bankrupt is not only inaccurate but also plays straight into the opponents' hands, since they can then respond with charges of scaremongering.

--Social Security confiscates one-eighth of workers paychecks. One-eighth. As in, "12%" of every paycheck. If you care about the working poor, then you simply cannot support the current system and you cannot call it a "success." You're lying if you say otherwise.

Regarding private accounts:

--Any program would be voluntary. As in, "voluntary." As in, "no one would ever be forced to invest in the stock market if they didn't want to." As in, "anyone who likes the current system can stay in."

--Any program would have a cash or money market option, so workers could still accumulate some personal savings without having to invest in the stock market. Even the White House website only mentions "a conservative mix of bond and stock funds," but not a cash option. Very stupid.

--Social Security is biased against blacks (life expectancy differentials), women (spousal benefits discourage working full-time) and of course gays (no spousal benefits under federal DOMA). Emphasizing this point would have undercut key segments of the Democratic opposition. An opportunity squandered.

--All the projections, assumptions, rates of return and other "facts and figures" mean nothing, absolutely nothing, if you die before reaching retirement age. In that case your rate of return is exactly zero (except for a rather insultory $255 death benefit).

These are not difficult concepts. They are easily packaged into talking points and sound bites. Because they are practically axiomatic, they stand up almost by themselves against the lies and distortions from the AARP, Rock the Vote, Big Labor and even the master of intellectual dishonesty, Paul Krugman.

And still this bass-ackward White House blew it.

How depressing, and how maddening.

The Associated Press is reporting that President Bush has encouraged a Republican Senator to introduce Social Security reform legislation without any provision for private accounts:

Mr. Bush's nod to Utah Sen. Bob Bennett comes as public polls show that most Americans don't support the president's handling of the Social Security issue. Congress has been deadlocked on it.

Mr. Bennett said that during a luncheon with other Republican senators at the White House, he told the president of his plans to introduce the bill as early as next week.

"He indicated that I should go forward and do that," Mr. Bennett said. "And I'm grateful to have him do that even though his own preference would be to have personal accounts included."

The President swore as recently as yesterday that he would not back down on private accounts. So much for that.

Instead he is on track to avoid vetoing any legislation throughout his eight years in office.

It's going to be a long 43 months.