Commentary

The Devil in Gore’s Details

By Andrew G. Biggs
June 5, 2000
Vice President Al Gore may soon regret demanding the details of Gov. George W. Bush’s “secret plan” to let workers invest their Social Security taxes in the market. For when voters see the particulars of Gore’s own proposal, many of them will agree with the bipartisan experts on Social Security who reject Gore’s plan as unworthy of the label “reform.” Voters will see Gore’s plan for what it is: a simple bailout whose costs will have to be borne by future generations.

Between 2010 and 2030 America’s elderly population will swell by 80 percent, while the workforce paying into Social Security will grow by only 2 percent. By 2015 Social Security will start running a payroll tax deficit and will need to turn to the trust fund to pay benefits until 2037. But the Clinton administration itself admits that trust fund bonds “do not consist of real economic assets that can be drawn down in the future to fund benefits [but] will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures.” In short, the fiscal crunch is barely 15 years away, and Social Security’s long-term deficit exceeds $21 trillion (in today’s dollars).

That leaves us with two choices: either save today to help pay for tomorrow’s retirees or use tax increases and benefit cuts to balance the books in the future. The Bush plan opts for savings: Workers could invest part of their payroll taxes in stocks and bonds, which would be saved to pay future benefits. The plan needs more details, but the fundamental choice — to save and invest rather than to spend — is the correct one.

Gore proposes to finance future Social Security payments by dedicating budget surpluses to paying off the national debt, which he says would allow $220 billion in annual interest savings to be added to normal Social Security revenues. This is good, but even that extra money won’t maintain a positive Social Security cash flow past 2021. So how can Gore claim to keep Social Security solvent until 2055 or beyond? Simple: by issuing even more debt to the trust fund.

But like the bonds currently in the fund, these new “assets” must be repaid by future taxpayers. Gore’s plan, says the Concord Coalition, “simply papers over Social Security’s looming shortfall” and “is not a solution to the question of paying for Social Security benefits. It just becomes a black hole.” Sen. Bob Kerrey (D-Neb.) declares the plan is full of “hidden pain in the form of income tax increases that will be borne by future generations of Americans.”

The important consideration is not whether Social Security will pay but rather how it will pay. With personal accounts, the answer is easy: by selling the real economic assets — stocks and corporate bonds — the worker accumulated over the years. But the Gore plan is simply a gift of debt to future generations. Maybe they’ll pay, enduring the massive tax increases or spending cuts necessary to do so. But calling this “reform,” the Congressional Budget Office’s director Dan Crippen believes, “may only make us feel better at the expense of our kids.”

Gore’s plan, in short, is all flash and no cash. As the Urban Institute’s Eugene Steuerle says, its “very complexity pretends to have done something for Social Security, and it weakens the demand for reform.” This may be Gore’s goal, since polls show the public’s strong preference for reform based on the Bush principle of personal accounts. But Gore’s bailout of Social Security is the very antithesis of responsible reform. The Government Accounting Office flatly declares that Gore’s proposal “does not represent a Social Security reform plan and does not even come close to ‘saving Social Security.’” A presidential campaign in the millennium year deserves better.

Andrew G. Biggs is a Social Security analyst at the Cato Institute.