Vilsack Fever

Ramesh Ponnuru:

Tom Vilsack has endorsed making Social Security benefits grow with prices, rather than wages—thus stopping them from growing at all, after inflation. He isn't even talking about doing it in a "progressive" way, with low-income workers shielded from the hit, as President Bush has. So on this issue, he's to the right of the president, not to mention every other candidate for the presidency in 2008.

I like his chances of securing the Democratic nomination more and more with every passing day!

I should note for the sake of precision, that once an individual's Social Security benefits are set, the do rise with prices rather than wages. The wage index comes into play when calculating your initial benefit level. It should also be said that while, technically, ending the wage index would massively cut benefits and thus save a bunch of money over the long term it's by no means clear that this would be the actual result. Before the wage index was implemented, what you had was a lot of congressional mucking about, with benefit levels raised at arbitrary points in time by arbitrary amounts according to whatever political strategy the politicians of the time were following. The wage index has served to substantially rationalize the system.

2/22/07 1:33PM del.icio.us this incoming links

Comments

Before the wage index was implemented, what you had was a lot of congressional mucking about, with benefit levels raised at arbitrary points in time by arbitrary amounts according to whatever political strategy the politicians of the time were following. The wage index has served to substantially rationalize the system.

Great point. But note that the era of Congressional mucking about and competing to raise SS payouts was an era of much more powerful unions in US politics than now. It's not clear that the same competition would exist post-Regan etc.

Posted by: otto on February 22, 2007 01:41 PM

The amazingly low level of understanding Social Security financials on the part of Democratic leadership is bewildering. I mean I know why Republicans are assualting it, they hate Social Security and always have. But Democrats have no excuse, assign a staffer to read the Report and do an analysis of the assumptions for God's sake.

You don't have to embrace Low Cost outright, but at least understand what the numbers in play are. Vilsack lost me here, not on the policy issue alone but because he is apparently too lazy to do basic research prior to spouting off policy solutions.

There is an honest case to be made against Social Security. That Libertarians were too chicken shit to make their case openly and had to result to data manipulation to sell crisis is not my problem. Leaders of my own party selling out the heart of the New Deal is.

It boggles the mind. Like having a Chairman of your House Intelligence not knowing the difference between Shi'ite and Sunni you wonder what they hell we are paying these guys for?

Posted by: Bruce Webb on February 22, 2007 01:54 PM

I predict a flip-flop in 3... 2... 1...

Posted by: Al on February 22, 2007 02:33 PM

Ponnuru is wrong that Vilsack's proposal is to the right of Bush's, because diverting payroll taxes to private accounts would do far more damage to SS than just cutting benefits alone. To my knowledge, Vilsack hasn't yet supported privatization -- though I wouldn't put it past him.

Posted by: anrig on February 22, 2007 02:40 PM

"because diverting payroll taxes to private accounts would do far more damage to SS than just cutting benefits alone"

Well that depends on how those accounts are structured and what rate of growth we get going forward.

The problem of private accounts is not that they can't work, because they can, for a certain percentage of tax payers, at a certain rate of growth. The problem is where the bend point happens. If we were having an honest discussion of future growth where privatizers and supply side tax cutters would agree to use the same economic model to score their proposals, well we could be having some interesting discussions about how to diversify Social Security and whether those assets should be moved from a Defined Benefit to a Defined Contribution system (that is all 'private accounts' would do on a practical basis).

I'm just not seeing the open and honest debate.

Posted by: Bruce Webb on February 22, 2007 04:58 PM

Bruce, As you know, all privatization proposals entail huge transition costs while making Social Security's potential financial shortfall more immediate and more severe. One thing about cutting benefits, which I am strongly opposed to, is that it doesn't inherently weaken the system while piling up debt. I disagree with you about private accounts "working" for a certain percentage of taxpayers at certain rates of growth. The transition costs swamp any potential investment returns, particularly when you take into account market risk. The cbpp has all kinds of number crunching demonstrating as much if you look back at their reports from 2005. As Reagan used to say about SS itself, privatization is a "sure loser."

Posted by: anrig on February 22, 2007 05:28 PM

To put the transition cost argument another way, the premise of private accounts is that we could give people a far better rate of return, if only we borrow a few trillion dollars to seed the system. It's insane. In fact, I've come to dislike the term "transition costs" just because it's so bland, it ends up sounding like a minor quibble.

Posted by: Steve on February 22, 2007 06:34 PM

Social insurance and private accounts are two entirely different things. SS ensures that I will have money to live on, even if I live to 110 (like my great-grandfather's cousin). A private account does not give me that assurance; I would need to put away much more money.

Posted by: dr2chase on February 24, 2007 11:02 PM

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