Social Security Plus

by Gary Boatwright, Tue Dec 21, 2004 at 06:25:54 PM EST

Framing is good, having an alternative as well is even better. In addition to blocking Bush's Social Security destruction plan, an effective legislative strategy must include an alternative.

The first step is to insist that Bush honor his pledge to implement a Social Security lock box. The only problem with S.S. is keeping politicians grubby hands off the trust fund. On January 9, 2004, Daniel Gross over at Slate had an article about Gore's Social Security lock box The Unlocked Box: How Bush is plundering Social Security to close the deficit

(there's more)

The only reason Bush's budget deficits are not close to Reagan's historical highs is only because they are raiding the S.S. trust fund and they plan to hijack approximately an additional trillion dollars in FICA contributions from wage earners.

In the 2000 campaign, Vice President Al Gore said we should sequester the Social Security surpluses in a "lockbox" to prevent appropriators from spending them. Bush agreed in principle. But that commitment went out the window soon after the inauguration. In his first three budgets, Bush (who had the good fortune to take office at a time when the surpluses were growing rapidly) and Congress used $480 billion in excess Social Security payroll taxes to fund basic government operations--about $160 billion per year!

By so doing, Washington spenders have masked the size of the deficit. For Fiscal 2004--which began in October 2003--if you factor out the $164 billion Social Security surplus, the on-budget deficit will be at least $639 billion, rather close to the modern peak of 6 percent of GDP. And according to its own projections (the bottom line of Table 8 represents the Social Security surplus), the administration plans to spend an additional $990 billion in such funds between now and 2008.

The second step is Social Security Plus. The Heritage Foundation has a "reform" proposal that suggests employees should be able to divert 1/3 or more of their S.S. contribution to a private plan similar to the retirement funds available to Federal employees under the Thrift Savings Plan. While CATO's Social Security reform plan recommends allowing wage earners to invest their entire 6.2% FICA deduction in a private retirement plan. The most common figure thrown around by the Bush administration is allowing wage earners to invest 1/3 of their FICA deduction. Because both of these programs, and whatever Bush proposes, will shorten the time until S.S. benefits start to draw down on the S.S. Trust Fund, you might want to think of these plans as Social Security Minus.

Interestingly enough, a proposal by AARP based on the Federal Thrift Savings Plan specifically recommends the TSP as an additonal second tier of retirement income with personal savings as the third tier. The National Center for Policy Analysis has a Social Security reform proposal titled The Federal Thrift Savings Plan: A Model for Social Security Reform that also does not suggest diverting any portion of the wage earners FICA contribution to the plan. One comment by the NCPA:

Of course, the Thrift Savings Plan and Personal Retirement Accounts differ in significant ways. Notably, the TSP monitors fewer than 5 million accounts, while the Employee Benefits Research Institute predicts that a Social Security PRA plan could include up to 148 million participants. This difference in scale would impose limitations. Many options available to TSP participants, such as the ability to borrow against their accounts, would likely be unavailable to personal account holders. Social Security PRAs would be more difficult to manage because participants' incomes, earnings records, and types of employers and employment would be so diverse. Still, the TSP is an excellent small-scale model for the structure and administration of PRAs.

Of course the actual Thrift Savings Plan for both the Uniformed Services and Federal Employees is colloquially known as Social Security Plus because it is a separate retirement plan in addition to Social Security. Federal Employees, members of the Uniformed Services ( and members of the National Guard once they are activate) are eligible.

The Thrift Savings Plan is referred to as Social Security Plus because it is an additional retirement fund available to Federal employees in addition to Social Security. Federal employees can contribute up to 5% of their income linked text [link blocked at home page: click on TSP Features and 4. Understanding Agency Contributions] into three distinct investment pools and receive matching funds from the Federal government.

The Social Security Plus plan Democrats should insist on is first, implementing a lock box for SS. That's it. SS is now officially fixed. We have just rescued one trillion dollars for the S.S. Trust Fund from the hands of grubby Republican hijackers.

Second, all wage earners should have the same rights Federal employees receive. Invest up to 5% of their total income into a TSP and receive matching funds from the government. The maximum contribution would be capped at the same income level as S.S., $87,000. The federal matching contribution would be initially capped at $2,000 per year for each wage earner. Multiple income families could have multiple accounts. I would also suggest a provision to allow low income earners to contribute a flat $2,000 per year irrespective of income.

The reason for the cap is because if 150 million wage earners signed up, the cost to the federal treasury would be limited to $300 billion per year. This is approximately 1/4 (perhaps less) of the cost of extending Bush's tax cuts for the wealthy. I would guess that 90% of Americans have no idea they are financing a Plus retirement fund for federal employees. I suspect there would be very strong support for allowing all Americans to have an identical plan for themselves. I also suspect that once Social Security Plus is put on the table, Federal Employee Unions will line up in strong support for extending their plan to every American.

Advantage One: This would set up a direct contrast with Bush's economic priorities. The simple choice would be between tax cuts for the wealthy or retirement accounts for all Americans. Instead of allowing Bush to frame the choice as tax cuts or no tax cuts, as "reforming" SS or not "reforming" SS, there would be a Democratic option. If we can afford tax cuts for the top 5%, we can afford Social Security Plus retirement accounts for the bottom 80%. Republican tax cuts for corporations and the super rich or retirement accounts for middle class and working poor Americans. Bush couldn't claim that Social Security Plus was unaffordable.

Advantage Two: Any plan Bush proposes automatically becomes Social Security Minus.

Advantage Three: This alternative puts in stark relief the class warfare game that Bush and the Republicans are playing. Given the stark alternative between claiming this program would be unaffordable and insisting on extending his tax cuts for the richest 5%, how are Bush and the Republicans going to accuse Democrats of engaging in class warfare?

Advantage Four: Linking the contribution level for Social Security Plus to the first $87,000 allows the program to have a progressive structure. It would also make it easier to raise the income level for contributing 6% to Social Security, because there would be a countervailing benefit to the FICA contribution on additional income.

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Raise the Cap on Payroll Taxes

I think we should also advocate raising the cap on payroll taxes. I think that currently only the first $87,000 or so of income is taxed. Raising that to a fairer level would raise a significant amount of funds.

This cap is what makes the payroll tax so regressive. This, combined with the SS lock-box, would shore up the trust fund for well beyond the current 42 years (or whatever it is) of solvency.

by VAprogressive 2004-12-21 06:54PM | 0 recs

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Re: Raise the Cap on Payroll Taxes

Agreed. It may not have been real clear, but I suggested in Advantage Four that Social Security Plus would offer an offseting advantage to increasing the payroll cap.

by Gary Boatwright 2004-12-21 06:57PM | 0 recs

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You Need To Simplify The Presentation!

There are some good ideas here, but the presentation is needlessly cluttered up front. Lots of detail that could be saved for later.

Framing isn't just about selling ideas. It's also about explaining things in naturally congruent ways--congruent so that other people can plug into them with a whole ensemble of different ideas.

I say this as someone who's just posted a similarly messy diary on Social Security. But if you work on cleaning up yours, I'm already committed to doing version 2.0 on mine. And who knows, we may find some handy congruencies between the two.

by Paul Rosenberg 2004-12-21 10:20PM | 0 recs

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Re: You Need To Simplify The Presentation!

Agreed. I am having trouble with the concept of pithy. I shortened it last night and am reworking it. I understand why they say it is easier to write a novel than a short story.

by Gary Boatwright 2004-12-22 04:28AM | 0 recs

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Re: You Need To Simplify The Presentation!

Maybe there should be a Catchy Slogan Contest to help sell the idea.

Secure Investment Plan(SIP)?

Retirement Plus?

by LaughingHistorian 2004-12-22 04:31AM | 0 recs

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What does this lock box look like?

What form does it take? Is it a warehouse full of cash? Is it a savings account at Bank of America?

The lock box was always a metaphor. The extra money flowing into the Trust Fund was always going to be invested in something and from a money flow perspective it didn't really matter what it was. As it is the choice was interest earning bonds. But having bought the bonds the money was still there, billions removed from the economy.

Now we could have left it that way, simply reduced the amount of currency in circulation. But managing the money supply is not Treasury's job. That surplus was always going to be deployed, it was always going to be spent, it was always going to be borrowed, because borrowing is exactly what the government does when it sells you a bond.

The lock box concept was simple. You keep working on getting the General Fund budget in balance, and use the Trust Fund surplus to pay off other Public Debt. You don't count it as some overall governmental surplus that keeps you from making hard choices. But there is no force behind this, it doesn't put any real world pressure on Congress, because in the real world the money is there.

The lock box was never a real thing, in the beginning and in the end it is an accounting device. It is no different thatn having a Balanced Budget Amendment that has an out clause for National Emergency. Because as we have seeen you can always produce a national emergency at will. And until someone produces some concrete method for implementing such a box, I am not going to take it too seriously.

by Bruce Webb 2004-12-22 05:18AM | 0 recs

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Al Gore will personally build a lock box

Please ready all cool grey boxes Bush has not pursued his promise to implement a lock box because not doing so allows him to mask his real deficit with surplus Social Security FICA payments. The actual deficit for 2004 would be $638 billion and close to Reagan's historical high of 6% of GDP.

The S.S. surplus over the next ten years will be close to a trillion dollars. Bush ignores that trillion dollars in excess FICA payments to pretend his 2005 budget proposal reduces the budget deficit in half. Again, please read all cool grey boxes before posting ignorant replies.

by Gary Boatwright 2004-12-24 09:21AM | 0 recs