- The Washington Times - Thursday, August 24, 2000

In an interview in 1998, Sen. Joseph Lieberman, Connecticut Democrat, boldly supported a personal investment account option for Social Security. Mr. Lieberman said, "A remarkable wave of innovative thinking is advancing the concept of privatization, some personalization of retirement plans."
He added that with personal accounts, "We have a chance not only to do something right, but to give people more confidence about what their retirement years will be like."
Mr. Lieberman continued, saying, "We're going to see again a kind of old Democratic Party/New Democratic Party split on this. I think in the end that individual control of part of the retirement/Social Security funds has to happen."
In 1999, after Mr. Lieberman became chairman of the Democratic Leadership Council, the group published the New Progressive Manifesto, which declared that "We must gradually convert Social Security from a transfer program to a new system of individual private savings supplemented by modest public pensions for the needy."
But the day after he became Al Gore's vice-presidential pick, Mr. Lieberman pulled off the crassest flip-flop while speaking before an intellectually retro AFL-CIO convention.
Regarding George Bush's personal account proposal, virtually identical to what Mr. Lieberman had previously supported, the new Gore running mate said, "Look at what Gov. Bush is proposing. Instead of saving Social Security, he's on a course to savage it with a privatization scheme that would take $1 trillion out of the nest egg that belongs to every worker in America."
But this new Lefty Lieberman has it exactly backward. Mr. Bush's Social Security plan would put $1 trillion in a personal, directly owned, nest egg for every worker in America.
Mr. Lieberman's original position made great sense. The biggest problem with Social Security is not that it is going bankrupt after the Baby Boom generation retires, with the government's own reports showing that payroll taxes would eventually have to be raised by 50 percent, or perhaps even 100 percent, to pay all promised benefits to today's workers.
A far greater problem is that even if all of Social Security's promised benefits are somehow paid, the program would still be a bad deal for today's workers. Studies from the Cato Institute show that at even just about half the average return earned in the stock market over the last 75 years, an average income two earner couple exercising a full personal account option throughout their careers would retire with almost $1 million in today's dollars after inflation. That fund would finance an annuity paying 3 times what Social Security promises but cannot pay.
The same is true for all workers today, rich or poor, black or white, married or single, with or without children.
In an unpublished op-ed supposedly written before he joined the Gore ticket, Mr. Lieberman tries to explain why workers should now be deprived of this great opportunity. A personal account option, he writes, would "substantially reduce the funds available to pay benefits," as part of the payroll taxes go into the accounts.
But Mr. Bush's plan would free workers to invest a portion of the payroll tax equal to projected Social Security surpluses, which are not needed to pay benefits. Over the longer run, as the personal accounts substitute for a portion of Social Security benefits, the benefit burdens on Social Security would be reduced. Indeed, if the personal account option is eventually expanded fast enough, the entire long-term financing crisis of Social Security can be eliminated by shifting benefit responsibilities to these personal accounts.
Mr. Bush's plan, in fact, would expand rather than reduce funds available to pay benefits, because general revenues would be on tap as a back-up safety net guarantee during the transition to the personal account system. Mr. Lieberman cannot possibly criticize this because Mr. Gore proposes to pay general revenues into Social Security to help bail out the system, without any fundamental reform to solve the system's problems.
Mr. Lieberman also complains: "What if these private investments go bad? The cost of bailing them out would inevitably fall on the federal government."
But with the personal accounts, individuals would invest through a structured framework of major investment companies regulated by the government. Market returns are so much higher than Social Security that it is extremely unlikely in this structure that the personal account benefits would fall below what the program promises. If some workers do end up needing help through a safety net, the burden on taxpayers would be a tiny fraction of what the current system would cost.
Mr. Lieberman concludes that personal accounts offer "too much risk" and "too little of a payoff to America's retirees." But shouldn't workers each be free to make this judgement for themselves, rather than having the senator's phony, politicized judgement imposed on everyone?
Finally, Mr. Lieberman suggests as an alternative to personal accounts, "we may have no choice but to raise the retirement age and the payroll tax." This is not a position designed to advance the interests of workers, but, rather, to preserve the Left's government dependency political machine.


Peter Ferrara is associate professor of law at the George Mason University School of Law, and a senior fellow at the Cato Institute.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide