Bush vs. Gore: Social Security
Gore Argument
By
Chris Rugaber (TMF RFK)
Unlike most political issues, Social Security has actually made fairly regular appearances here at Fool.com. (However, if you want more, you can discuss all manner of issues on our Political Asylum discussion board.) In many ways, this makes sense, given the program's size (there are approximately 43 million recipients), the scope of its aims (retirement security for every elderly American, as well as disability protection), and the place it claims in our retirement planning, a subject the Fool discusses regularly.
This Duel is a little different from what you normally find in this space. Not only are we debating a political issue, but we're debating different politicians' proposals. So, unlike the last time we had a Duel on Social Security, my role is to present Al Gore's views here, as much as my own.
Did you know that Al Gore is the one who really invented Social Security? Ha, ha! Thank you, you're a great crowd...
Gore's Social Security Plan
Of course Vice President Gore did not create the program. But his proposals to reform Social Security are, despite some flaws, preferable to George W. Bush's, and will do more to encourage saving and ensure retirement security for future generations.
There are basically two parts to Gore's plan. The first relates to the program's financing, and the second aims to encourage additional saving for retirement, particularly among the less well-off.
Financing Social Security
As almost everyone knows, Social Security faces long-term financing challenges as it's currently structured, thanks to the impending retirement of millions of baby boomers. Despite the talk of "your" money in Social Security and the "returns" it gets, the program is actually pay-as-you-go, with most current tax dollars going straight to today's retirees.
As senior citizens become a larger percentage of our population, the ratio of workers to retirees declines. Current proceeds are sufficient to pay current benefits through at least 2014. Afterward, regardless of all the talk of the Social Security Trust Fund, the federal government will have to use additional revenues to fund benefits.
Gore's plan involves paying down the national debt, and dedicating the savings from the reduced interest payments on that debt to Social Security. By 2015, Gore expects that these savings will amount to about $250 billion per year. (Last year, almost $230 billion of our tax dollars went to pay interest on the Reagan-Bush debt.) The Gore campaign projects that these additional funds will ensure the solvency of Social Security until 2054.
Status Quo
Now, of course, Mike and others will point out that this doesn't really change much about the current program. And admittedly, I am not particularly wild about this proposal. But it's worth taking a second to defend the status quo, since the prosecution certainly has had plenty of air time.
Social Security is an effective, relatively efficient, and non-bureaucratic government program. Administrative overhead is less than 2% of its overall budget. And, as I noted in an earlier Duel, the program succeeds at its primary goal of reducing elderly poverty. Senior citizens are less likely to be poor than any other age group, with only 10.8% of the elderly living below the poverty line in 1996, the most recent number I could find. (Meanwhile, 20.5% of children under 18 lived under the poverty line that year.) According to the Center on Budget and Policy Priorities, 11.7 million senior citizens would live in poverty without Social Security, which provides 40% of seniors' aggregate income.
And that, after all, is the point: Social Security is not a savings program for individuals -- though politicians through the ages have certainly depicted it that way -- but a social insurance program that ameliorates poverty among those no longer expected to work. As a result, the "returns" your Social Security taxes "earn" are completely irrelevant.
Retirement Savings Plus
Nevertheless, so far this isn't much. But, Gore also wants to add a new program to supplement, rather than subtract from, Social Security, which he refers to as "Retirement Savings Plus." This proposal could help change the federal government's role in enhancing retirement security.
Gore's Retirement Savings Plus program would essentially provide the equivalent of 401(k) matching programs to those least likely to currently have them. A couple making less than $30,000 per year could deposit $500 each into separate Retirement Savings accounts, and receive a $1,500 refundable tax credit per account (meaning they'd get the cash, minus whatever taxes were owed); couples earning between $30,000 and $60,000 could deposit up to $1,000 per year in each account, and receive a $1,000 refundable tax credit; and couples making up to $100,000 could deposit up to $1,500 each and receive a $500 credit. Income limits for single taxpayers would be half these numbers.
These retirement accounts would be maintained by private financial institutions, and could be invested in mutual funds. As Gore's website notes, "At the end of 35 years, [a couple making less than $30,000] would have a retirement nest egg of more than $400,000 -- on top of, not instead of, full Social Security."
This would accomplish many of the same goals of those who advocate some form of privatization, without risking the safety net that Social Security provides. Individuals would have to work and save in order to participate, would control their own savings, and would benefit from investing in the capital markets, if they so chose.
For those in low-paying jobs, without stock options or 401(k)s and the other accoutrements of the New Economy, Retirement Savings Plus would provide a similar opportunity to build savings. In addition, this program also addresses an unfortunate trend of the 1990s: the growth of temporary and contract workers, who are much less likely to have any kind of retirement benefits.
Fluid Labor Markets
In fact, temporary agencies are now some of the top employers in the U.S. In 1997, temp company Kelly Services was the third-largest employer in the U.S., and Olsten was the fifth-largest. Until some recent court rulings, almost 35% of Microsoft's employees were either contractors or what some are now calling "permatemps," employees hired through temporary agencies and kept on indefinitely.
This is a separate issue, of course, and I'm not necessarily arguing it's all bad. A flexible labor market like the one we have in the U.S. is generally a good thing. The relative ease with which employers in the U.S. can hire and fire, and the willingness of many people to switch jobs and learn new skills, is one of the engines behind our current economic growth. Nevertheless, in a highly mobile labor market with growing numbers of contractors and temps, fewer workers will get retirement benefits from their employers. That's why Gore's plan to fill this gap is an excellent idea. The pressure he would take off the Social Security system with this program sets the stage for continued reform down the road.
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