As public support for less taxes and more private ownership of retirement funds grows, Gore’s position on these issues has gone from scare tactics and obfuscation to outright mimicry. Unfortunately, Gore’s plagiarism skills are little better than his grasp of sound public policy. Gore’s new retirement proposal, Retirement Savings Plus (or, as he called it in his speech today, Social Security Plus), shares two key points with the Bush plan: Both rely on individuals to manage their own investment accounts, and both use various government mechanisms to transfer the funds into the private accounts. Amazingly, we now have bipartisan support for the idea that individuals — even low-income individuals who would be complete novices in the market — can be trusted to invest; and we have agreement that individual accounts can be administered effectively and affordably. Unfortunately, that is where the similarities and agreements end.
The biggest and most important difference between the two plans is that Gore proposes to create a new $200 billion entitlement program, while Bush relies exclusively on funds already available from existing Social Security payroll taxes. This is no small difference. Through this proposal, Gore is saying that the $400 billion taxpayers already pay annually to the government in hopes of getting some of it back when they retire is not enough. Gore would like the public to fork over an addition $35 billion per year. Worse yet, in order to get any of those new funds back, Gore would require up-front contributions from participants through a 401(k)-type matching program. Low-income workers would get three dollars for every dollar they contribute, middle-income workers would get a dollar-for-dollar match, and those unfortunate enough to have high incomes would get only 33 cents per contributed dollar. Give, give, and give some more, and you shall receive.
Gore seems to ignore the fact that low-income workers historically forgo such matching programs when offered by their employers. While Gore’s proposed match is certainly much higher than is typically available in the private sector, the barrier to participation is discretionary income, not return on investment. Where does a worker earning $15,000 a year scrape together $500 for his retirement? He doesn’t. In all likelihood, only middle- and upper-income individuals would participate in Gore’s matching program, leaving the poor outside the investor economy yet again.
Bush, on the other hand, throws open the doors to the markets by allowing all workers who pay Social Security taxes the opportunity to invest. Without further burdening the economy through the creation of another entitlement program, and without creating a complicated matching scheme with prohibitive up-front contribution requirements, Bush allows all workers to establish private accounts that will grow at rates triple or quadruple the rates received from Social Security, are free from government control, and are fully inheritable.
To be fair, while Bush’s proposal is far superior to Gore’s, neither adequately addresses the fundamental problems inherent in our troubled Social Security system. Specifically, both leave large unfunded liabilities that will ultimately lead to the system’s insolvency, neither does much to improve the dismal returns most workers will receive from the Social Security taxes they pay, and both continue the dependence of individuals on the good will of future lawmakers for their retirement benefits. This is unacceptable.
While I applaud Gore for finally flopping onto the foundations of a good proposal, he has a lot of tumbles to go before he arrives at a plan as good as Bush’s, and even more tumbles before he lands on a full privatization proposal that would rightly return retirement decisions entirely to individuals. Unfortunately, I don’t think there is enough time in this election season for Gore to tumble that far — nor for Bush to begin his own acrobatics to reach such a sensible solution.