“Governor Bush is promising to take a trillion dollars out of Social Security and give it to younger workers for investments in private accounts,” Gore said in a major economic speech in New York last Thursday. “Sounds pretty good, doesn’t it?” Gore continued. “The problem is, Governor Bush has promised the same money to seniors for their current benefits. Which promise is he going to break? Who gets left out in the cold?”
The same idea is now being trumpeted in TV ads in key states and in other campaign speeches. At a campaign stop on Friday, Gore declared, “It really is time for Governor Bush to explain which promise he intends to keep and which promise he intends to break, because it is abundantly obvious that you cannot spend the same trillion dollars twice.”
Gore’s charge is easily rebutted. From the very beginning, Bush has said that he would use the projected Social Security surpluses, as well as some of the general budget surplus, for his personal account reform. These surplus funds are not needed to pay current Social Security benefits — that is why they are called surpluses.
Over the long run, the personal accounts will actually reduce Social Security’s financial obligations, as workers come to rely on the accounts instead of the current program. As a result, the government would not need to collect as much in payroll taxes to finance Social Security benefits.
In other words, to the extent workers shifted from the current Social Security framework to the personal accounts, the unfunded liabilities of Social Security would be reduced.
Meanwhile, it is Gore, not Bush, who has the real double-counting problem. In the first debate, in the very same sentence, Gore told the nation that he would both keep Social Security funds in a lockbox and use those funds to pay down the national debt.
Well, which is it? Using the annual Social Security surplus to pay down the national debt is not exactly keeping Social Security funds in a lockbox for Social Security. Gore also pledged at that debate that he would “veto any plan that takes money out of Social Security and uses it for any other purpose.” Apparently Gore would veto his own plan, for he proposes exactly to take the surplus money out of Social Security each year and use it for another purpose – paying down the national debt.
The Bush plan merely expands the Social Security framework to include personal accounts. As a result, the surplus money doesn’t actually leave Social Security. Rather, it is shifted to the new personal account part of the overall program, where it is saved solely for future retirement benefits.
Under Gore’s plan, by contrast, the surplus money is not used for retirement benefits at all, but is diverted out of Social Security to pay down the national debt.
Through personal accounts, the Bush plan directly addresses the biggest problem facing Social Security: that the program has become a bad deal for today’s workers, even if all currently promised benefits are somehow paid.
Personal accounts would provide much higher future benefits for workers, as capital market investments would earn much higher returns than the current Social Security system can pay.
The Gore plan does not address this problem. Draining the Social Security surplus to pay down the national debt does nothing to improve future Social Security benefits, and nothing to close Social Security’s long term financing gaps.
Indeed, by pledging to transfer several trillion dollars in general revenues to Social Security to cover its deficits, Gore is implicitly calling for a multitrillion dollar income tax increase to bail out the program, above what income taxes would otherwise be.
Higher taxes are not a solution to the future financial problems of Social Security. They are precisely what taxpayers are seeking to avoid.