Senator Hagel's Social Security Plan
Last Monday, Senator Hagel (R-NE) introudced a bill to reform Social Security based largely on raising the normal retirement age from 67 to 68 for those under 45 now and to continue to index it to longevity thereafter. As this is the basis of my preferred option for reforming the system, I view it as welcome news. The plan also includes personal accounts, along the lines of the President's initiative. The plan was initially described and outlined in articles in the Omaha World-Herald. The Social Security Chief Actuary's evaluation of the plan is here.
Senators Hagel and Boxer (D-CA) appeared on Face the Nation last Sunday to discuss his new bill and the Democrats' approach to Social Security. Hagel's got a plan. All Boxer does is accuse Republicans of wanting to "destroy the system." Does any reasonable reading of what Hagel has proposed constitute "destroying the system?" Adjustments to life expectancy to get the program solvent through the next 75 years, the option for personal accounts along the lines of the Thrift Savings Program, and transitional borrowing repaid out of future program savings? Boxer repeatedly refuses to say what she would do to restore solvency, saying only that there are many things that we can do.
In my view, which I understand is not shared by people with more of a partisan interest in the Democratic party per se, exchanges like this make the Democrats look bad. Boxer is attacking motives, not substance, and she is offering nothing constructive of her own. Which of the two is taking a leadership role? Senator Nelson (D-NE) seemed more reasonable today in a joint appearance with Senator Chafee (R-RI) on Meet The Press this morning.
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6 comments:
The Democratic plan should be...Social Security. There's a good chance it will be fine if left entirely alone. If a few tweaks are found to be needed, then raising the payroll cap on upper-income taxpayers (the same ones who've benefitted from unfunded, irresponsible tax cuts) will more than suffice.
Any plan that includes carving out private accounts undermines the Social Security system--Boxer was exactly correct in saying so.
I agree completely with your main point: The Democrats need a clear coherent proposal for Social Security.
Your suggestion of raising the retirement age makes sense. Perhaps we can also find a low overhead method of means testing benefits (right now we tax a portion of benefits). A means test would make the program into more of a safety net, and less of a retirement plan. I’m a fan of Senator Hagel (2008?), but the private account portion of his proposal makes no sense and appears to be purely politics.
This article in the NYTimes this morning had some scary numbers: “Less than one-quarter of workers are covered by a traditional defined-benefit retirement plan. And savings through individual retirement accounts and 401(k) plans have been meager: in 2001, the average worker in the 55-to-64 age group had a balance of only $42,000.”
I’m not sure what “average” means in this context, but $42K in a 401(k) plan will only provide $2K to $3K per year in retirement income. These are the people (the low savers) most likely to consider the private accounts portion of SS as a substitute for their 401(k) plan and they might even save less! This shows that we still need the safety net aspect of SS or we will have a large portion of the next generation’s retirees living in poverty.
Best Regards!
I agree completely with your main point: The Democrats need a clear coherent proposal for Social Security.
Your suggestion of raising the retirement age makes sense. Perhaps we can also find a low overhead method of means testing benefits (right now we tax a portion of benefits). A means test would make the program into more of a safety net, and less of a retirement plan. I’m a fan of Senator Hagel (2008?), but the private account portion of his proposal makes no sense and appears to be purely politics.
This article in the NYTimes this morning had some scary numbers: “Less than one-quarter of workers are covered by a traditional defined-benefit retirement plan. And savings through individual retirement accounts and 401(k) plans have been meager: in 2001, the average worker in the 55-to-64 age group had a balance of only $42,000.”
I’m not sure what “average” means in this context, but $42K in a 401(k) plan will only provide $2K to $3K per year in retirement income. These are the people (the low savers) most likely to consider the private accounts portion of SS as a substitute for their 401(k) plan and they might even save less! This shows that we still need the safety net aspect of SS or we will have a large portion of the next generation’s retirees living in poverty.
Best Regards! (sorry if this posted twice)
Hagel's plan is interesting and is a far cry from the Bush scheme. Lots of reasonable things but let's get serious about this carve-out thing. I agree with the Barro-Becker view that there is no expected return benefit, which also means there is no portfolio risk increase - assuming individuals are rational. Fine but how do we deal with the day traders who lose - assuming there are such irrational folks?
I struggle to understand calls for the Democrats to have a plan. Should Bush be under some obligation to present one himself first? One that actually relates to the solvency of the program.
That said, all credit to Senator Hagel for actually putting something down.
I don't think it would hard for Republicans to get agreements on modest steps to improve Social Security forecasted financials. What is hard is for them to smuggle privatization in with it. That choice to couple essentially unrelated issues is the true source of the logjam.
Tom G
Since this is at least the second time you have argued that the Democrats should be putting forward an alternative plan on Social Security, I would be interested in understanding why you think that.
I think I understand why you want them to - it would facilitate a bargaining process that would likely lead to an outcome you favor. But why is it so hard for you to see that it is far from obvious that their failure to offer an alternative plan will cost them politically?
Consider health care reform under Clinton. I wanted the Republicans to play ball. I thought it reflected poorly on them to block it, as Bill Kristol called for, "sight unseen." But that it was a deft move politically seems clear, at least in retrospect. Republicans paid no price for this; indeed, it probably helped them in 1994.
Fast-forward to today, and read the Washington Post:
"Thirty-five percent of those surveyed said they approved of the way Bush is handling Social Security..."
"Nearly six in 10--58 percent--say they are more inclined to oppose administration's reform plans as they learn more about it."
Seems at least possible that Democrats have a lot to gain just by opposing a plan that is becoming increasingly unpopular, no?
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