Michael Jordan missed more shots than Karl Malone did in this year’s championship-winning basketball game. Tell this to your average sports fan, however, and he’ll say you’re missing the point: Jordan also made more shots than Malone, including two in the last minute that gave the Bulls an incredible come-from-behind victory.
By using similar illogic, Rep. Charles B. Rangel (D-N.Y.) recently used the Congressional Research Service to misrepresent proposals for Social Security reform. Instead of evaluating how the reform proposals would change retirees’ income, Rep. Rangel asked the CRS to focus exclusively on benefits provided through the traditional Social Security pay-as-you-go structure. His methodology forced the CRS to issue a report that ignores the revenue that would be generated by redirecting payroll taxes to personal retirement accounts.
It’s hardly surprising that proposals that incorporate personal retirement accounts do not fare well under the slanted analysis Rangel requested. One of the main benefits of permitting private investment is that, in the future, individuals will receive their retirement income from a funded, privately owned account instead of from taxpayers’ pockets. Rangel’s method required the CRS to label any reduction in federal spending as a “benefit cut” and ignore the wealth that would accrue as a result of a lifetime of investment.
Rangel might argue that this odd methodology is based on the tremendously pessimistic assumption that the market would tank and all money invested in personal retirement accounts would vanish. However, the Ball plan — the one treated most favorably in this report — requires that the federal government invest the Social Security trust fund in equities as a way of increasing program revenue. The ability of the government to invest successfully is unquestioned by the CRS: therefore, it accepts that the Ball plan can provide higher benefits to future retirees.
Rangel’s inconsistency could be taken as evidence of simple government paternalism. Some politicians really don’t believe we are capable of investing on our own — but they’re willing to take the same gamble on our behalf, with our money.
Maintaining the Social Security status quo is one of the riskiest propositions for individuals.
But the report is also a reminder of the many dangers of allowing the government to serve as a money manager. The federal government — by determining regulation, taxation and trade law and by influencing the availability and cost of capital — already wields huge influence over every aspect of economic life. Under the Ball plan, the federal government would become a major stockholder in companies throughout the country and perhaps overseas. Revelations about campaign financing scandals and bills dishing out pork to favored companies and industries already permeate the news; the possibilities for corruption created by wedding the federal government’s financial future to that of the business world is breathtaking to contemplate.
In contrast, in a system of personal retirement accounts, politicians would no longer control our retirement security. Each individual would own an account and watch his assets grow through the power of compound interest during his lifetime. Opponents of this kind of reform cite the “risk” of the financial market for individuals. That argument ignores history: the stock market has provided a relatively stable rate of return over long investment periods. Moreover, individuals would have the option of investing in the bond market, which would still provide a much higher rate of return than the current pay-as-you-go system of financing.
In fact, maintaining the Social Security status quo is one of the riskiest propositions for individuals. Social Security will begin paying out more in benefits than it takes in as revenue in less than fifteen years. At that time, taxpayers will learn that redeeming the bonds in the Social Security “trust fund” requires additional tax revenue. With the number of retirees ballooning as baby boomers retire, it will be difficult for the federal government to squeeze enough taxes from workers to pay the promised benefits. Future benefits will almost certainly have to be cut. By the Social Security Administration’s own projections, today’s young workers should expect to receive only 75 percent of currently legislated benefits. Regrettably, the CRS report ignores fiscal reality; it evaluates all proposals against currently legislated benefits as if today’s program was actually sound.
In its defense, the CRS does reveal its slanted methodological approach in the first paragraph of its report. It even acknowledges that the information provided is insufficient to assess each plan’s implications for individuals’ retirement income. Unfortunately, the CRS’s caveats will likely be ignored, and the CRS’s findings will likely be taken out of context by those like Rep. Rangel who are desperately trying to slow the momentum behind reforming Social Security into a system of personal retirement accounts.