Newt Returns to Privatizing Social Security

Campainging like is it 1999.

Via the AP,  Gingrich calls for private retirement accounts:

Republican presidential contender Newt Gingrich on Monday proposed allowing younger workers still decades away from retirement to bypass Social Security and instead choose private investment accounts that would be subject to stock market gyrations.

[…]

Under the plan, workers would be able to do one of two things: continue sending their share of Social Security taxes to the popular, safety-net program or give it to private firms that would compete for those dollars — as much as $20,000 a year, Gingrich estimated.

“No one is ever forced into the (private account) system,” he said after the speech.

Markets would determine how much money workers who chose private accounts would get each month. Gingrich guaranteed a minimum income in case Wall Street collapses like it did in 2008.

A few thoughts.

1.  Been There, Done That.  President Bush engaged in a heavy push early in his second term to reform Social Security in this direction.  It failed.  The political climate for such a proposal has only worsened since then.

2. We Just Went Through a Financial Collapse.  One can make claims about guarantees, but the fact of the matter is, the near-collapse of the financial sector and the massive stock losses that went along with it demonstrated have caused some reevaluation of the wisdom of yoking the entire country’s retirement security to the Wall Street.

3. Optional?  What is it with this new fetish for half measures?  (Perry was first with his optional flat tax).  There is no wisdom in creating two systems that will result in disparities.  At any given moment in time, one plan would likely be better than the other.  Consider:  if one had retired in, say, 1998 with a stock-base portfolio, life was good and yet, no so good in 2008.  Further, a bifurcated system  still leaves the government on the hook for bailing out whichever one isn’t working at a specific moment in time, with all of the commensurate political resentments that such a situation would create.

4.  Helping the Wealthiest.  Of course, such a program (especially an optional one) would fundamentally help the wealthiest (who already fund their retirements outside of SS as it is).  So, basically, this idea is an opt-out for persons of financial means.  The persons to whom this type of proposal appeals are people who already make enough money to have individual retirement accounts and/or work-based pensions to go along with Social Security.

Part of what bugs me about this is that if Gingrich is even 10% as smart as he thinks he is, he knows this is a non-starter, which makes lines like “Wouldn’t you rather control your account?” and claims that his proposal “would save literally trillions over the next generation” nothing put fantasy and pandering. One can’t even pretend that he is trying to spark a debate about public v. private retirement.  Understand:  I have no problem with a politician proposing and trying to champion ideas and trying to garner support for them.  Still, relative failures on this specific policy especially in the context of the recent financial crisis makes this come across as an oldie but a goodie instead of an attempt at a serious proposal.  Further, claims about funding the proposal are the stuff of hand-waving:

Employers would still pay their share of the tax, which would be used to pay benefits for current retirees. But it would create a funding shortfall that Gingrich brushed off.

Ok, so the current funding mechanism is so robust that we can afford to fund it solely from employer contributions.  That’s news.

And then there is this:

Gingrich’s plan would cover the near-term deficits by giving to states responsibility for such programs as AmeriCorps volunteers, Section 8 public housing and Pell Grants for college students. He said states were better suited to administer those programs.

This strikes me as an odd proposal insofar as it appears to save the federal government money by shifting some costs to the states for federal programs.  It is a little unclear as to whether this is a proposal to shift the entire cost of the programs, or just the administrative costs, but even if one takes the most charitable interpretation it means more cost for the states.

But, don’t worry:

His advisers couldn’t say how much the plan would cost, when it would begin or who would be eligible. They did say, however, that current retirees would continue to receive benefits at promised levels.

So, no worries, then.

FILED UNDER: Campaign 2012, US Politics
Steven L. Taylor
About Steven L. Taylor
Steven L. Taylor is a Professor of Political Science and a College of Arts and Sciences Dean. His main areas of expertise include parties, elections, and the institutional design of democracies. His most recent book is the co-authored A Different Democracy: American Government in a 31-Country Perspective. He earned his Ph.D. from the University of Texas and his BA from the University of California, Irvine. He has been blogging since 2003 (originally at the now defunct Poliblog). Follow Steven on Twitter

Comments

  1. This was one of the things that led to Rick Perry’s downfall in Florida. We won’t have another domestic policy debate until December 10th, but it will be interesting to see if Newt’s opponents hit him on this one, especially in state’s like Florida

  2. You’re missing the biggest piece of them all… that letting people do this would make the whole system fall apart. Not in time… right away. Every dollar taken out would have to be paid for through debt, since the people currently in the system would still be getting their benefits.

    Looking forward to when Gingrich is out of the picture.

    Solomon Kleinsmith
    Rise of the Center

  3. Rob in CT says:

    SS is the problem, anyway. The problem is mostly medical costs. And, to me, military expenditures as well. SS ranks a distant third for me.

    it would create a funding shortfall that Gingrich brushed off.

    Of course he did. He’s an ideas man! Details, schmetails.

    Also, funding shortfall = feature, not a bug. This is the GOP we’re talking about. Starve that Beast, boys!

  4. Rob in CT says:

    Isn’t the problem, rather. Oops.

    Random anecdote: I found myself in the Hartford Social Security office yesterday. I need a new SS card, as I lost mine long ago. Anyway, I found the experience almost painless. There was a wait, but that’s because there were lots of people there. I was in and out in half an hour (during lunchtime, no less), and ~15 people were served in front of me.

    The only irritating bit was the security theatre on the way in. Because, you know, terrorists are totally planning to hit the Hartford, CT Social Security Administration office.

  5. mantis says:

    A few responses:

    1. Been There, Done That.

    None of the potential candidates have new ideas, Steven. It’s all cut taxes and privatize everything, all the time. Do you expect anything else?

    2. We Just Went Through a Financial Collapse. One can make claims about guarantees, but the fact of the matter is, the near-collapse of the financial sector and the massive stock losses that went along with it demonstrated have caused some reevaluation of the wisdom of yoking the entire country’s retirement security to the Wall Street.

    It’s a feature, not a bug. Yoking retirement security to Wall Street enriches their supporters on Wall Street (and themselves). They aren’t actually interested in the retirement security of normal Americans. This much should be obvious by now.

    3. Optional? What is it with this new fetish for half measures?

    This one is easy. It’s to assuage the fears of seniors who don’t want their SS touched. Any system that’s optional is a system the old folks can ignore. Of course, it makes no economic sense, as you point out, but such a move would only be step one. Step two is eliminating Social Security altogether, at a time in the future when the stock market is up and those private accounts are doing (temporarily) well.

    4. Helping the Wealthiest.

    Again, a feature, not a bug. In fact, this seems to be the Republican Party’s only real policy goal. Everything else they espouse is just a means to get elected or re-elected. Helping the wealthiest is the only goal they actually try to accomplish.

  6. Stan says:

    Newt’s call for privatizing Social Security will help him, at least in the primary. So will his criticism of child labor laws, and his support of Paul Ryan’s plan for replacing Medicare with a voucher program. Newt’s running in a Republican primary, and he knows his audience. In calling for an end to Medicare, Social Security, and child labor laws, he’s attacking LBJ, FDR, and Woodrow Wilson. As I said, he knows his audience.

  7. @mantis:

    None of the potential candidates have new ideas, Steven. It’s all cut taxes and privatize everything, all the time. Do you expect anything else?

    In all candor: no, I don’t.

    A man can dream, however.

    *sigh*

    (although, not all retreads are created equal and this one strikes me as an especially silly one).

  8. @Stan:

    As I said, he knows his audience.

    Indeed.

    As I said above: pandering.

  9. Liberty60 says:

    As has been pointed out many times, the ideal model of governance of the conservative movement is the Confederacy.

  10. john personna says:

    @mantis:

    It’s a feature, not a bug. Yoking retirement security to Wall Street enriches their supporters on Wall Street (and themselves). They aren’t actually interested in the retirement security of normal Americans. This much should be obvious by now.

    Very much so. The rake on retirement fees would be significant.

    You guys saw the controversy with unemployment benefit debit cards, right?

    The unemployment debit-card scandal

  11. MBunge says:

    @Steven L. Taylor: “As I said above: pandering.”

    But at least it’s pandering on a policy issue, unlike Romney’s full-throated embrace of the “Obama apologized for America” stuff.

    This is pretty much an example of why I want Newt to be the GOP nominee. He’s so in love with his own intellect that he can’t help but want to impress everyone with his brilliant ideas. On the other hand, the TV ad out from the Romney campaign quoting Obama quoting McCain in 2008 is pretty much what we’re going to get out of him. With a legion of legitimate criticisms to make and Presidential statements to spin, Romney basically starts out lying to our faces and daring anyone to make a big deal out of it.

    Mike

  12. @MBunge:

    But at least it’s pandering on a policy issue, unlike Romney’s full-throated embrace of the “Obama apologized for America” stuff.

    A fair point.

  13. Barb Hartwell says:

    We all know what is the right thing to do for everyone but law makers choose to take what little some have and say it`s for the good of America. You never hear them say we the law-makers need to take less or pay for their retirement. They are shameless scum.

  14. de stijl says:

    Further, a bifurcated system still leaves the government on the hook for bailing out whichever one isn’t working at a specific moment in time, with all of the commensurate political resentments that such a situation would create.

    Privatizing profit and socializing risk? I’m shocked! Shocked!

  15. Tsar Nicholas says:

    Hell, I would pay Uncle Sam to let me opt out of Social Security. Seriously.

    The Feds can keep every single dollar of the payroll and self-employment taxes they’ve taken from me over the past 25 years. Just keep it. I’ve already written it off in any event. Just send me a form and let me opt out of the system. I’ll be responsible for my own retirment. Uncle Sam won’t have to give me a penny in S.S. retirement benefits. I’ll disavow them. I’ll disclaim them. I’ll sign a blood oath. In exchange, however, Uncle Sam stops levying payroll taxes against me. I’d sign that deal in a heartbeat. For the simple reason that I can beat the real return on S.S. retirement benefits with my eyes closed. I could smoke crack for the next 20 years and still beat it. I’m willing in any event to take that risk. It’ll be my choice. My responsibility.

    What could be more quintessentially American?

    The left claims incessantly to be about freedom of choice. This is the opportunity for all leftists to put my money where your mouth is. Let me opt out of Social Security. Give me that freedom. If you want to stay in the system, hey, great, bully for you. Knock yourselves out. Just give me and people who are like minded the choice to do otherwise with our own money and with our own financial security. Set us free, leftists, let our people go.

  16. Stan says:

    @Tsar Nicholas:

    It matters not how strait the gate,
    How charged with punishments the scroll,
    I am the master of my fate:
    I am the captain of my soul.

    That’s one take on things. Here’s another:

    I returned, and saw under the sun, that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all.

    Believe me, you have no idea what can happen in life. I’ll take Ecclesiastes over Invictus any time.

  17. john personna says:

    @Tsar Nicholas:

    So how many people will start out like you, and then end up demanding welfare, food stamps, or a place in the shelter?

    The problem with private retirement is that most people are stupid, and only come to understand that late in life.

  18. mantis says:

    What could be more quintessentially American?

    Being stuck supporting you anyway when you find your retirement savings have been lost, either due to a market crash or your own stupidity.

    Privatize the profit, socialize the risk. No thanks.

  19. Jeremy Kolassa says:

    @Tsar Nicholas: This, exactly.

    I just want to opt out of the system. I want to keep what money I earn, and make my own way in retirement. And before you go on about “but don’t you care about your elders?” think for a moment: this was an entire generation, (maybe two) that decided to rack up huge credit card dent and then pass it off to their children in the most irresponsible manner possible. So yes, while I do care about my elders, no, I don’t feel that I should be shackled to them for their misdeeds.

  20. john personna says:

    @Jeremy Kolassa:

    So what is your savings rate, right now, even with SS out there?

    (If it’s below 20% you haven’t put your money where your mouth is. Without SS it should be more like 30%.)

  21. john personna says:

    For anyone who thinks non-SS retirement is easy, I recommend:

    A Million Is Not Enough: How to Retire with the Money You’ll Need

    The book actually recommends a risky (equities heavy) course, because it assumes that most people are not prepared, and did not start saving soon enough. Still, it is good for selling the scale of the problem.

  22. MBunge says:

    @john personna: “So what is your savings rate, right now, even with SS out there? (If it’s below 20% you haven’t put your money where your mouth is. Without SS it should be more like 30%.) “

    And let’s remember that if people start having to save that much money for their retirement, they have that much less to spend and fuel the economy.

    Mike

  23. Rob in CT says:

    SS is forced savings, yes. I’d love to believe that if we got rid of it, all would be well. But I do not believe that. I think the result would be a bunch of people who saved inadequately/got unlucky/are stupid and end up poor & too old to work.

    That’s pretty much what we had before Social Security, no?

    So, while I agree that SS is forced savings, I consider it necessary insurance – not only for the individual but for society at large. It’s that or deal with the inevitable fallout (or ignore it, as I imagine the hard Right would prefer).

    A saavy investor probably can beat SS over time (I say probably, because people are never as smart as they think they are, and a poorly-timed market downturn could screw up even a well-planned retirement), sure. But it’s supposed to be a safer investment than equities. That’s the tradeoff.

    I agree that it’s an infringement on liberty. I do. I accept it, though, because I look at the alternative and I think it’s worse.

    I’m not really sure how an opt-out option will really work, btw. SS tax is split between employee and employer, right? Ok, if I opt out, does my employer then pay me the “employer share”? If not, then it’s a pretty crappy deal for me.

  24. Ben Wolf says:

    @Solomon Kleinsmith: The U.S. doesn’t pay anything through debt. It doesn’t borrow so it can spend, it simply credits accounts. U.S. bond issuance is a method by which the Fed controls inter-bank interest rates, and is not used for funding federal spending.

  25. Liberty60 says:

    @Jeremy Kolassa:

    I want to keep what money I earn, and make my own way..

    Same song and dance we have heard endlessly from conservatives.

    Yet they never, as a group, walk the walk.

    As a group, they suck at the public teat just through less obvious means. They demand military bases, demand public gravy train pork barrel projects, demand all sorts of rent-seeking special tax breaks that no one else gets,and demand public infrastructure (paid for by other people of course).

    Oh, and they are always, always, blubbering and sulking and threatening to pack their clothes and run away and join the circus if anyone dares tax their wealth.

    But of course they never do. The magical fairyland of Conservatopia is just that, a myth, someplace they know exists but can’t quite find on the map.

    Good God, were I made President for one day I would write an Executive Order to round up and deport every member of the 1% and airdrop them over Somalia.

  26. Liberty60 says:

    @Liberty60:
    OK, after reflection, I may have been a bit harsh in my post.

    I would edit the last sentence to read “…deport every member of the 1% and airdrop them over Somalia with parachutes.”

  27. anjin-san says:

    Just give me and people who are like minded the choice to do otherwise with our own money and with our own financial security. Set us free, leftists, let our people go.

    And when two-thirds of you are both elderly and destitute, which ice floe should we drop you off on?

  28. Racehorse says:

    While I don’t agree with much of what Mr. Gingrich proposes, I would like to see some choices that would allow people to invest some of their social security money . This could really help by increasing the future benefit and help the economy by investing in businesses. A win-win situation. It would also help the government because many people would be less reliant on Social Security later. They could easily live off of the investment money. This, of course, should be tax free.

  29. steve says:

    @Tsar- Opt out of Medicare also and we have a deal.

    Steve