Without getting into all the details of the proposal, I'll just note that it requires workers to pay an additional 1.5 percent in payroll taxes while raising the ceiling on earned income subject to the payroll tax. Those two changes alone would be much more than enough to cover Social Security's projected long-term shortfall.In the context in which (I think) he's making the claims, that is correct. The 75-year actuarial deficit is 1.92 percent of taxable payroll. The actuaries' evaluation of our plan calculates the impact of raising the ceiling to be equivalent to an increase in the payroll tax of 1.00 percent. Add that to the 1.50 PRA contribution, and you get 2.50 percent. Continuing:
But the authors go beyond that to reduce guaranteed benefits substantially and hope that the new accounts financed by the higher and diverted taxes will be more than enough to make up the difference.The reduction in benefits via the benefit formula is equivalent to 2.08 percent of taxable payroll, and the increase in the retirement age is equivalent to 0.62 percent of taxable payroll. As an aside, most people would do a little arithmetic and see that, over the first 75 years, our plan is 2.5 percent revenue increases and 2.7 percent benefit reductions and think of that as balanced. Those who actually took the time to "get into the details" of the plan would realize that while the revenue increases alone are enough to achieve what the actuaries define as "long-term solvency" (a trust fund ratio of 1.00 at the end of the 75-year period), we need more to achieve our target of "sustainable solvency" (long-term solvency, plus a growing trust fund at the end of the projection period), but I don't want to get bogged down in that here. I discuss it somewhat here.
The word "hope" is also misplaced here. Anyone who wants to know what happens to the retirement benefits workers in different cohorts and different earnings levels can go to Tables B1-B1c of the actuaries' evaluation and see for themselves. (More of those pesky details.) As a quick summary, for a single beneficiary who was a career low earner in the period after all changes are phased in, benefits are reduced to 62 percent of present law benefits, and PRAs are projected add 23 percent if invested only in Treasuries and 36 percent if invested in a higher-risk, higher-return portfolio consisting of half stocks, a quarter Treasuries, and a quarter corporate bonds.
The post then asks:
What's the point of introducing market risk if raising the taxes alone would address Social Security's shortfall? The authors say that walling off the funds in the accounts from the rest of the government (now in the form of the existing trust funds) would "increase the likelihood that they would contribute to national saving."There are two answers here. The first is that it is reasonable to allow people to make choices to pursue higher returns with some additional risk if they are being required to put new money into the system. The second and more important one is that people on the political right, myself included, will not agree to support a plan in which new money is thrown at the old system without any change in the way it is allocated. And the reason is the one given about the impact of Social Security surpluses on the rest of the government budget.
Is the conjecture here that it will not increase the likelihood, that it would make no difference to the government's budget policy if every new dollar of revenue brought into the system were matched by an outflow to the accounts? That's easy to dispute. During the last campaign, the President said he wanted to cut the budget deficit in half in 5 years. As I note in this post, that included not just the level but the growth in the Social Security surplus over that time period. Excluding Social Security, that target was equivalent to only cutting the deficit by a quarter over that time period. If Mr. Anrig would like to expand the off-budget surplus to enable the President (and, in my view, all presidents) to set targets for the on-budget deficit with even less gusto, that's his business, but Jeff and Maya and I are having none of it.
Now it gets interesting. He continues:
Hmmm, that dubious connection sounds like something that Martin Feldstein would say. And wouldn't you know it, two of the three authors of the New America report - Andrew Samwick and Jeffrey Liebman - had previously co-authored privatization plans with Feldstein. Dr. Feldstein, of course, is the supply sider whose years of privatization work essentially laid in ruins after the past year's analysis of similar plans by the Congressional Budget Office, the Center on Budget and Policy Priorities, and even the Office of Management and Budget.It must be that the house specialty in the TPMCafe today was a cocktail of ad hominem and (presumed) guilt by association. And when a patron has had too much, it must be that he can't link straight, because I certainly would expect to see some documentation to support the innuendo and assertions running through this nonsense. If you want to know what Feldstein thinks about entitlement reform, just read his AEA Presidential address. If you want to know what Liebman thinks about Social Security reform, do the heavy lifting required to Google him and read his cover story in Harvard Magazine. And, you might say, I'm an open blog on the issue. None of us expect you to agree with everything we write.
Let's keep going:
In any case, now the right can seize on the opportunity provided by New America to say that even a vibrant new progressive institution supports privatization. Of course, the conservative groups will never buy into a payroll tax increase. But that doesn't matter to them. New America has dutifully served their purposes.
I think it is probably true that some on the political right will do that. (And perhaps some on the political left will distort what it means when I am quoted making critical remarks about the current administration's policies.) And when I see it happening, it is my job, as the right-leaning co-author of the plan, to set the record straight. Mr. Anrig is free to e-mail me and let me know if I'm falling down on the job of taking on those on my right flank. And here's the big finish:
At the outset of the New America proposal, the authors write, "the three of us - former aides to President Clinton, Senator McCain, and President Bush - did an experiment to see if we could develop a reform plan that we all could support." Please. All three (New America's Maya MacGuineas is the third) have long supported privatization. That's the kind of disingenuousness that characterizes today's conservative movement. An institution that calls itself progressive has no business behaving the same way.People can certainly disagree about how difficult it should have been for the three of us, given our backgrounds, to come up with the plan. (Read some of Maya's earlier views here.) I would hasten to add that the plan is about much more than just the inclusion of personal accounts. I suppose that if we were all a bunch of conservatives, then there would be some other plan here that resembles ours. I'm not seeing it. Pozen's ideas are probably closest. And he's a Democrat.
I'll conclude by doing something that always gets me into trouble. I'm going to give advice to someone to the left of me ideologically. It has three parts:
First, if you ever have a hope of being part of the governing coalition in this country, I'm the sort of person right-of-center that you need to persuade to join that coalition. If you bridge that gap and hold your base, then you would almost surely have enough people to constitute a majority. You do yourselves no favors with commentary like this. Read the plan. Make suggestions. Be a part of the solution.
Second, if you hope to be taken seriously on anything having to do with fiscal policy, don't take pot shots at people like Maya, who has devoted her professional life to trying to improve the clarity and quality of budget policy in Washington. Don't dump on New America because Ted Halstead is smart enough to keep a range of perspectives among his distinguished group of fellows. The interactions among the group make all of them better. This sort of behavior makes you look--your words--just dumb.
Third, if you fancy yourself a liberal, and if your coalition doesn't extend far enough to the right to include Jeff Liebman, then you have relegated yourself to political irrelevance. Enjoy!