Is Thrift Savings Plan Analogy Bogus?

Josh Marshall contends that, “One of the most misleading comparisons President Bush made in his State of the Union address came when he compared private accounts carved out of Social Security to the Thrift Savings Plan available to employees of the federal government.”

No federal employees put their Social Security funds into the TSP. The TSP is in addition to Social Security. To the extent that there is an analogy to anything it is to an add-on account — the kind Democrats support and Republicans oppose. . . . The question isn’t why everyone shouldn’t have the chance to get in on the Thrift Savings Plan. The question is why everyday Americans should have to choose between Social Security and the TSP when federal employees now get to have both.

Neither the president nor others using the analogy, such as columnist George Will, are using it to mislead. Rather, they use it to show that there are ways to combine investment in personal accounts with some reasonable level of security. This is in response to misleading claims by Democrats like Sen. Harry Reid. As Will notes,

In Reid’s televised “response” to the president’s State of the Union address—written before the address—he disparaged the idea of voluntary personal retirement accounts funded by portions of individuals’ Social Security taxes as “Social Security roulette.”

Why is this misleading?

Roulette is a game without any element of skill. By comparing the investment of some Social Security funds in stocks and bonds to gambling on roulette, Reid is saying that the risks and rewards of America’s capital markets, which are the foundation of the nation’s economic rationality and prosperity, are as random as the caroms of the ball in a roulette wheel.


After saying that the 4 percentage points of Social Security taxes could be invested only in a few broadly diversified stock and bond funds, Bush pointedly said to the assembled representatives and senators: “Personal retirement accounts should be familiar to federal employees, because you already have something similar, called the Thrift Savings Plan, which lets workers deposit a portion of their paychecks into any of five different broadly based investment funds.”

Thus, Bush proposes private investment with some government oversight. While not ideal from a libertarian perspective, it nicely rebuts the Democratic, “Yeah, but what about morons who invest all their money at the racetrack?” argument.

Update: As to Marshall’s “why not both” question, the answer is really simple. First, the president essentially is saying both, just giving people the option of going with anything from 96-100% of their current Social Security taxes and 0-4% into their personal accounts. Second, a lot of people simply can’t afford to put everything they’re currently required to put into SS plus more money into a 401K-type plan. Finally, the plan is supposed to help alleviate the impending strain on SS that comes from the fact that it really isn’t an investment plan at all but rather an inter-generational wealth transfer. To the extent that we remove younger workers even partially from SS, we decrease the amount their children and grandchildren will have to fork over to subsidize their retirement.

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James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College and a nonresident senior fellow at the Scowcroft Center for Strategy and Security at the Atlantic Council. He's a former Army officer and Desert Storm vet. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. McGehee says:

    “Investing” one’s money at the racetrack would actually be a fairly good choice. The profits from all the people who wager at the track are nothing to sneeze at.

    Admittedly, I’ve never actually heard a Democrat say anything like that “morons who invest at the racetrack” stupidity, but if I ever do, I’m ready…

  2. jenniebee says:

    I see that McGeehee thinks that track owners are all in danger of going broke by virtue of running their businesses like charities…

    The trouble with saying that the Thrift Plan analogy is a valid one is that by doing so, you’re acknowledging (as the President won’t) that his proposal is for a 60+% cut in Social Security, for which one would be compensated by a mandatory private investment account.

    At least with Social Security, the anti-libertarian aspects are balanced by socializing the risk; what Bush is proposing strikes at both security and liberty at the same time – quite a feat, actually.

  3. Harry says:

    Anyone who has a 401K has the same retirement investment opportunity as Federal employees already. And if they don’t have a 401K, wouldn’t the classic Republican response be “that gives them an incentive to get a better job”? I had to explain to three people the day after the SOTU that federal employees were indeed part of social security, and what Bush alluded to wasn’t a special system for federals in lieu of SS. Yes, it was a bogus analogy.

  4. FredW says:

    You say “anything from 96-100% of their current Social Security taxes and 0-4% into their personal accounts”

    That’s not the Bush proposal. It’s 32% of their payroll taxes that are diverted. Does it surprise you that many supporters of the Bush plan seem to be innumerate (as this “only 4% of payroll taxes” line as been oft repeated)? I think there is a cause and effect in there somewhere.

  5. McGehee says:

    I see that McGeehee thinks that track owners are all in danger of going broke by virtue of running their businesses like charities…

    I see that Jenniebee flunked reading comprehension.

  6. JakeV says:

    FredW is correct. Link here.

    If you don’t like Marshall, this is from MSNBC:

    That could affect many, if not most, workers who set aside the proposed maximum allowable in the new accounts, 4 percent of salary or one-third of the current total 12.4 percent paid into the Social Security system by workers and their employers.

    It seems that either James misspoke, or he is unfamiliar with the basics of the Bush proposal.

  7. Ol' BC says:

    While people argue about and crunch numbers, nobody seems to want to discuss the enormous opportunities W’s program will afford the working poor and lower middle class. Not everyone who amasses some wealth will leave the Democrats. The Dems should at least try to discuss the issue intelligently. They seem to just oppose anything Bush proposes.

  8. Italiano says:

    Perhaps the Dems could propose to CONFISCATE the money that federal workers have deposited in TSP accounts and transfer the money to the Social Security “Trust Fund” in exchange for more Social Security “credits.” Since Social Security is a better and less risky proposition, and the wise actuaries at the Social Security Administration would “invest” the money so much better, I’m sure that federal workers would be wild about it.

  9. Harry says:

    Ironic that you mention confiscation, since the Bush plan will confiscate a large portion of the private account upon the worker’s retirement. There won’t be much wealth to accumulate, especially for lower-income workers whose benefits will likely barely make it to the floor established by SSA.

    And I didn’t see anyone claiming that SS is “better” than the TSP – just like someone with a 401K, or IRA, it’s the first part of an overall retirement plan.