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In the hyperbolically headlined “‘Reformocons’ Struggle To Define Their Movement As Something Better Than Capitulation To Liberalism,” Breitbart writer John Hayward takes issue with conservative reformers. The lengthy piece mostly keys off a Slate article written by Reihan Salam, and I will leave it to Salam to do a point-by-point rebuttal if he cares.
But it gives me a hook to clear up some confusion. In his Slate piece Salam writes, “Instead of defending the welfare state in its current form, reformocons look at the goals of programs like Social Security and Medicare and then try to find better, fairer, more cost-effective ways of achieving them.”
To some on the right, that might sounds like a technocratic defense of the status quo. (Hayward calls it “a mixture of banality, hair-splitting, and straw-man bashing.”) And if your goal is to time-travel America back to the pre-safety net America of the early 20th century, then the conservative reform agenda is probably not for you (though you still might like our anti-cronyism stuff). But really the sort of thing Salam is describing is ambitious, sweeping, and conservatively principled.
Here’s an example: During last year’s midterm election season, then-candidate Joni Ernst — now Iowa’s new US Senator — took much fire from Democrats for wanting to “privatize Social Security.” Now that charge wasn’t quite accurate. What the tea party-backed Ernst actually proposed was to allow younger workers to divert some portion of their payroll taxes into personal investment accounts.
And that’s a good idea. Well, at least it was 10 or 20 years ago, when creating such accounts was a core element of the center-right reform agenda. The “Ownership Society” philosophical justifications for personal accounts, including giving people more control over their financial future, are still valid. But time and federal budgets and economic realities change and move on. Here is AEI scholar and Social Security expert Andrew Biggs in a podcast with me:
When the personal accounts were proposed in the mid-1990s through to when President Bush pushed them around 2005, Social Security was running surpluses equal to around 2% of payroll, collecting a 12% tax, but the cost to the system was only 10% of your wages, leaving extra money. The government takes that money, spends it, and credits it to the Social Security Trust Fund. There’s no saving going on.
People proposed personal accounts funded at around 2% of the payroll. You could take that money, put it into the account, and save it to pay benefits in the future. The surpluses that funded the accounts have mostly turned into deficits partly due to an aging population, but partly due to the weakness of the economy, fewer people are working and paying taxes. Letting people take some money out for a personal account, at least in the short-term, makes that deficit worse. Transition costs come about where you have to come up with the extra money to fund these accounts.
And Biggs in National Review:
One problem for the Bush administration’s reform drive in 2005 was that many congressional Republicans had bought into the idea that accounts reduce or eliminate the need for tax increases or benefit cuts. Finding out they don’t may have taken some wind out of their sails. … President Bush’s 2001 Commission to Strengthen Social Security (on which I was a staffer) wrote that once the program began to run payroll-tax deficits — something that happened this year — policymakers would face difficult choices to raise taxes, cut benefits, reduce other programs, or increase the budget deficit. … With personal accounts, we face the same choices, only sooner. If workers invest part of their Social Security taxes in personal accounts, they could indeed earn higher returns and generate higher benefits without taking more risk. But diverting taxes to accounts leaves the program short of what is needed to pay benefits to today’s retirees. To cover these “transition costs,” we would need to generate new revenues for the program, either by raising taxes, cutting other programs, or borrowing.
So here in 2015 Biggs has proposed an updated version of personal accounts as part of a broader program to put Social Security on sound fiscal footing. Here is the thrust of it: First, workers would be enrolled automatically in an employer-sponsored retirement account and contribute at least 1.5% of pay, matched dollar for dollar by their employers. Second, Social Security’s government-provided benefits would be transformed into a flat universal benefit mean to improve social-insurance protections for low-income Americans. Biggs: “If you put the two benefits together, this poverty-level benefit, plus the individual accounts, the result is near what Social Security promised to pay, but can’t afford. It’s a more reliable system for low-income folks and it’s more affordable on the tax end.”
Or in other words: Keep low-income seniors out of poverty, nudge the middle- and upper-class to save for their retirement, and make the financial math work. Smart, conservative, pro-growth reform. Something that should strike the broad center-right movement, tea partiers included, as pretty reasonable at least. Conservative principles stay the same, the policy manifestation gets modernized. (And what is left-liberal Social Security reform? Raising taxes and expanding it, according to Elizabeth Warren.) It seems that much or even most of the criticism of conservative reformers comes from those who (a) all-the-time prefer a virulently harsh anti-Obama, anti-government tone, (b) think the GOP’s economic agenda must forever-and-always revolve around cutting the top income tax rate, or (c) really do want to dismantle the safety net. Or all of the above.