WASHINGTON -- In recent weeks I had become increasingly glum about the prospects for Social Security reform this year (although I think in the long run the pro-reform movement will prevail). Thus, I couldn't get too excited by the release of Senator Jim DeMint's new plan. But I have to reconsider.
The basics of DeMint's plan are that it only uses the Social Security surplus to create personal accounts and it initially only puts treasury bonds in those accounts. In early 2008 an advisory board similar to the one that manages the Thrift Savings Plan will start adding other investment options.
Two things make me a bit more optimistic about DeMint's plan: (1) a press release from Minority Leader Harry Reid topping off a long string of such press releases this week; and (2) a press conference held yesterday by Brad Woodhouse of Americans United to Protect Social Security and Dean Baker of the Center for Economic and Policy Research to denounce the DeMint plan. That Reid's press release is a pack of distortions and contradictions and that the press conference was held before the DeMint plan was even released suggests that the anti-reform forces are nervous about this one.
And with good reason. The first benefit of DeMint's plan is that it calls their bluff on both treasury bonds and protecting Social Security. The DeMint plan forces Democrats and other anti-reform forces to answer the question: if the treasury bonds that are in the Social Security trust fund are such a wonderful investment, what is wrong with putting those bonds in personal accounts? My guess is that the anti-reform forces will quickly try to change the subject. Next, because the personal accounts create ownership they do far more to strengthen Social Security than the current system. Under the current system, we have no ownership right to our benefits -- Congress could even fail to make good on our benefits by defaulting on the bonds in the trust fund. Congress would have a far more difficult time messing with personal accounts that were owned by millions of voters. The DeMint plan enables the pro-reform forces to pose the question: what protects Social Security more, bonds held in some trust fund or bonds owned by millions of Americans?
The pathetic arguments contained in Reid's latest press release suggest that DeMint has boxed the anti-reform forces in. First Reid claims, "The DeMint Social Security bill allows investment in risky assets," but later adds,
Contrary to proponents' claims, the DeMint bill will not end the misuse of Social Security surpluses for other purposes. Under the bill, Social Security surpluses initially will be used to pay for other government programs in essentially the same manner as under current law -- that is, they still will be used to purchase Treasury securities, and the Treasury still will use the cash to pay for other government programs. After 2008, a portion of excess payroll taxes will continue to be invested in Treasury securities and used to support other programs.
If we make the not too heroic assumption that the those "risky assets" are not treasury bonds, then DeMint's plan does stop Congress from raiding the surplus, at least in part. Every dollar in a personal account invested in something other than a government bond is one dollar less that Congress has to spend. So Reid is either doesn't know what he is talking about or he is prevaricating. Take your pick.
Nor is it correct as Reid states that the DeMint "plan will add $1.7 trillion to the debt in the first 20 years." That debt is still there even if we leave Social Security in its present form; it's just piling up in the trust fund instead of being held by the public. If Congress were to implement DeMint's plan it would mean that the annual deficit would increase, unless Congress cut spending. Perhaps facing the prospects of more pressure for spending cuts is what has Reid so antsy.
Finally, the anti-reform forces are trying to claim the DeMint plan is more than just a first step. At the press conference yesterday Woodhouse griped, "It is more than the camel getting its nose under the tent. It's the camel getting its nose, its head, its hump, everything under the tent." But by limiting the personal accounts to only what is in the surplus and avoiding (for now) the question of solvency, the DeMint plan robs the anti-reform forces of two of their more potent weapons, benefit cuts and so-called "transition costs." By making personal accounts the first part of Social Security reform it gives Americans a taste of what ownership of Social Security is like. Once that happens, it will likely be much easier to deal with questions of benefit formulas and account size.
So does DeMint's plan have what it takes to achieve a victory on Social Security reform this year? Given events of the last few months, it would be foolhardy to predict yes. But DeMint's plan will force those Senators who vote against it (or, more likely, vote to filibuster it) to defend the continuing raid of the Social Security surplus at the expense of protecting it with personal accounts. That's the best news the pro-reform side has had in a while.
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