Social Security

Social Security
Privatization debate already has some odd twists

December 13, 2001

Is poverty inherited like wealth? And, can payroll taxes be used to offset that effect?

Those questions are likely to be part of a forthcoming public debate over Social Security that promises to be more interesting and less mindlessly ideological than the usual partisan rhetoric about "saving" the system. For once public officials are openly asking what Social Security is for, instead of just how it should work.

The president’s Commission on Social Security Reform recommended Tuesday that younger workers be allowed to invest part of their payroll taxes in the stock market. Given that President Bush packed the commission with supporters of privatization, this in itself is unremarkable. What is noteworthy, however, is the way some of the commission members are talking about Social Security.

The usual argument for privatization centers on the idea that in the long run investing in stocks provides a greater return on investment than Social Security. Groceries, however, are not purchased in the long run and stocks yield a greater return precisely because they involve greater risk.

Privatization also carries huge transition costs. Seniors’ monthly payments come out of the payroll taxes paid by workers. If younger workers divert some of that money to Wall Street the money owed retirees has to come from other taxes. Under even its modest privatization proposals, the commission estimates those costs to be as much at $3 trillion.

Nonetheless, conservatives see privatization as a way to get the government out of the retirement plan business, boost business investment and reward workers for initiative and productivity. The fascinating part is that liberals may come to agree.

Washington Post columnist William Raspberry talked to two members of the commission, former Sen. Daniel Patrick Moynihan, a prominent Democrat, and Jagadeesh Gokhale, an economic adviser to the Federal Reserve Bank in Cleveland. They focused on the idea of helping workers to build wealth, and, as Raspberry quotes Gokhale, "the inequality of wealth in America."

The thing is, Social Security cannot be inherited. Some workers will receive benefits for years, while others will get little or nothing. Stocks, however, are an estate — and any system that enables even low-income workers to pass on an inheritance could change the face of America.

The details are daunting, and nothing will happen quickly, but any debate that has Democrats talking about building wealth and Fed economists talking like social reformers is bound to be worth watching.