Joni Ernst, The Tea Party, and Conservative Reform

 

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.

There are 13 comments.

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  1. Gödel's Ghost Inactive
    Gödel's Ghost
    @GreatGhostofGodel

    James Pethokoukis: (c) really do want to dismantle the safety net.

    OK, I’ll say it: I really do want to dismantle the federal government “safety net.”

    That said, will I accept something in the short term that neither puts the poor on the street, bankrupts the system (further), nor increases taxes? Absolutely. But it is “a technocratic defense of the status quo” inasmuch as it tacitly accepts an illegitimate role of the federal government and leaves the corrosive dependency-on-the-state relationship intact.

    • #1
  2. Guruforhire Member
    Guruforhire
    @Guruforhire

    I really do want to dismantle the government social safety net.

    It is a capitulation to the idea that some people are subhuman garbage whose sole purpose of existence is to be food for the others.  It is short, an indulgence of one of uglier expressions of human malice for their fellow man.

    I don’t care if some mental masturbation exercise saves social security, I want to hear about how you are going to take less of my money, and then I don’t even care if you light it on fire in the parking lot afterwards.  Its all the same to me.

    • #2
  3. user_1126573 Member
    user_1126573
    @

    My question is about the retirement accounts. It seems to me that many, probably most, americans won’t manage or monitor these accounts very well, and many will see terrible or negative returns on their savings. At that point we will hear wailing and gnashing of teeth about how the federal government fed the innocent and ignorant lambs to the wolves and wasted a large chunk of their hard earned retirement.

    Forced private investment seems like a bad idea. Giving people the option of diverting a certain portion of their payroll taxes seems like a better idea, that way people who aren’t interested in or capable of managing a retirement portfolio don’t get forced to do something that won’t work for them. But without making the program mandatory for all, you don’t eliminate the uncertainty about the long term solvency. It would probably help to a degree, though.

    • #3
  4. Tuck Inactive
    Tuck
    @Tuck

    James Pethokoukis: 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 progressive, pro-growth reform.

    Fixed that for you.  The hint’s in the “nudge“.

    “”People often make poor choices – and look back at them with bafflement!” Thaler and Sunstein write. “We do this because as human beings, we all are susceptible to a wide array of routine biases that can lead to an equally wide array of embarrassing blunders in education, personal finance, health care, mortgages and credit cards, happiness, and even the planet itself.” Thaler and his co-author coined the term choice architect.”

    There’s nothing but Progressive in that notion.  Just let us “experts” make all your decisions for you!

    • #4
  5. AIG Inactive
    AIG
    @AIG

    I have a different critique of “reformicons”.

    The ideas are poorly thought out. That’s it. They’re just not good ideas, mostly. They’re ideas a freshmen in economics might entertain.

    And we see this all the time: policy “prescriptions” on college, the “middle class”, “jobs”, child tax credits etc.

    Mostly, poor ideas.

    This SS stuff; not a “reformicon” idea. It’s an idea from the 1970s., implemented in several other countries, and generally pushed by conservative economists for decades. Sorry, “reformicons” don’t get credit for the idea. They may get credit, eventually, for screwing it up.

    • #5
  6. Son of Spengler Contributor
    Son of Spengler
    @SonofSpengler

    James Pethokoukis: 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.

    Hmm, an individual mandate and an employee mandate? Where have I heard that before?

    • #6
  7. Steve C. Member
    Steve C.
    @user_531302

    1. Eliminate the fiction that our SS contributions are “saved” in some magic account by issuing regular treasury bonds, not phony “we owe it to ourselves” obligations recorded in some magic government account.

    2. Give citizens ownership of their accounts, including a survivors benefit payable as a one time benefit or having the Feds purchase an annuity. Do you know that according to the U.S. Supreme Court you have no legal right to receive benefits?

    3. For anyone born after 2001, Create a minimum benefit and allow citizens the option of diverting up to 50% of their payments into the Vanguard 500 Index fund and/or a bond fund.

    4. Allow anyone over the age of 40 a one time buyout option, taking a federal debt obligation equal to current investment, with maturity at age 65.

    5. Permit anyone under 40 the option of taking their contribution, not the employer contribution, into a no load mutual fund. Any fund approved by the federal employee thrift savings program.

    My suggestion is to transform the whole mess over the next 40 years. Above all else, avoid overly complex technocratic wonky solutions. And don’t be scary!

    • #7
  8. Rachel Lu Contributor
    Rachel Lu
    @RachelLu

    Well it makes sense to me. I’m in favor of smart policy ideas that 1) might be politically viable and 2) don’t threaten to leave millions more Americans hungry and cold. Those two things aren’t unconncted btw.

    • #8
  9. user_129539 Member
    user_129539
    @BrianClendinen

    John Wilson:My question is about the retirement accounts. It seems to me that many, probably most, americans won’t manage or monitor these accounts very well, and many will see terrible or negative returns on their savings.

    If every single American had taken what they and their employer put into Social secrutiy and instead invested them in long-term U.S. Government bonds they would be getting twice the cash every month than they would under current social security payment methods. So you would have to be a royal screw-up to actually preform worse than the return Social security gives.

    • #9
  10. user_1126573 Member
    user_1126573
    @

    Brian Clendinen:If every single American had taken what they and their employer put into Social secrutiy and instead invested them in long-term U.S. Government bonds

    So you’re proposing that the default investment would be government bonds with an option to put them in something else? I suppose that makes sense. Although I’m curious what diverting 3% of the US population annual income into treasuries would do to the federal bond market. Seems like it would lower interest rates.

    • #10
  11. user_1008534 Member
    user_1008534
    @Ekosj

    OK. Let’s see. We require an employee contribution of 1.5%. And an employee contribution of 1.5%. (Question – are these capped like FICA?). I hear no mention of reducing the current FICA tax rates, so I assume they remain the same at 6.2% for employees and 6.2% for employers. Sooooo ….. After all is said and done ….. Employees pay a total of 7.7% and employers pay 7.7%. That’s an increase in government required ‘contributions’ – aka ‘taxes’ – of at least 24.1% for employees and employers. I say “at least” because if the new required 1.5% ‘contributions’ aren’t capped then the total increase in government required ‘contributions’ would be more than 24.1%.

    So …. Not to put too fine a point on it, the plan is really just the same thing as raising FICA taxes at least 24.1%.

    And on the outlay side of things you say this new plan pays “near what Social Security promised to pay “. I guess words were chosen carefully here. “Near”… as in almost, but not quite as much. In other words, it cuts benefits.

    Wow!!!! To save Social Security from having to balance its books by raising taxes and cutting benefits, you advocate raising taxes and cutting benefits. (To be sure there are some shiny new programs and benefits waved around in there as distractions, but at the end of the day its just raising taxes and cutting benefits.)

    James. Just how STUPID do you think we are!?!?!? You – and anyone else shilling this idea – should be embarrassed!!!

    • #11
  12. Vectorman Inactive
    Vectorman
    @Vectorman

    Ekosj:OK.Let’s see.We require an employee contribution of 1.5%. And an employee contribution of 1.5%.(Question – are these capped like FICA?).I hear no mention of reducing the current FICA tax rates, so I assume they remain the same at 6.2% for employees and 6.2% for employers. Sooooo ….. After all is said and done ….. Employees pay a total of 7.7% and employers pay 7.7%. That’s an increase in government required ‘contributions’ – aka ‘taxes’ – of at least 24.1% for employees and employers. I say “at least” because if the new required 1.5% ‘contributions’ aren’t capped then the total increase in government required ‘contributions’ would be more than 24.1%.

    Realistically, employers do not “pay” the SS tax, the employee pays both sides with decreased take home pay.  And it is somewhat true for 401K’s, except that the employee has the opportunity to take matching funds from the employer or just the immediate (taxable!) cash.  The employer needs additional funds to cover the matching funds, like with SS.  But in both instances, it’s the employee’s money.

    • #12
  13. liberal jim Inactive
    liberal jim
    @liberaljim

    The mindsets of elites of both conservative and liberal persuasion are that there are people who are not as bright, disciplined or competent as they are and that for the good of society these people must be protected from themselves.  Nothing could be further from the truth.  Are there people less bright, etc. than some elites? – yes, but most have not been cursed with over-sized egos, which more than compensates for any deficit.  Does society benefit when individuals are protected form the consequences for their actions? – no, the exact opposite is true.  A role of government is to protect people form the lawless deeds of others, not from their own stupid decisions.  As for the ponzi  scheme referred to as SS, let it go broke.  I would support a modest expenditure of funds to make it abundantly clear to everyone that it is going broke, but only because it was a government initiated ponzi scheme.

    • #13

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