President Bush’s proposal to create individual Social Security investment accounts has won a surprising vote of approval from the nonpartisan Congressional Budget Office.
CBO analyzes budget and policy proposals for Congress and has a reputation for being more liberal than most Republican leaders would like. But earlier this month, in a little noticed study on the financing alternatives needed to keep the nation’s largest retirement fund solvent, CBO clearly embraced Bush’s plan to let individuals invest part of their payroll taxes in stocks and bonds instead of the governnment.
In the study’s pivotal conclusion, CBO’s analysts said this: “Assets set aside to fund future obligations are most likely to be insulated by a system in which ownership and control rest with individuals. In that circumstance, each participant has property rights and legal recourse to guard against the diversion of resources.”
The libertarians at the Cato Institute, who have long been pushing for the partial privatization of Social Security, could not have said it better.
The issue of who will do the investing and who will own the assets is a critical one in the continuing debate over Mr. Bush’s plan. While Democrats are largely opposed to the entire idea of individual accounts, the Clinton administration called for investing Social Security funds in the stock market as long as government bureaucrats did the investing and the gains went into federal coffers. Even Al Gore liked the idea.
But CBO rejects that approach for a variety of very sensible reasons, including the chances that future administrations and future Congresses will spend the accumulated assets on other things.
“An approach in which the government invests collectively on behalf of program beneficiaries is less likely to succeed. If the money did not belong to individual participants, future policymakers could find alternative uses for it — to create a new benefit, fund a new program, or perhaps cover a budget gap,” CBO said.
“A future Congress, confronted by war, recession, or other urgencies, could spend the invested resources or could run larger budget deficits or smaller surpluses that offset the effect of boosting savings,” the study said.
“No trust fund, lockbox or other accounting device has yet proved effective in protecting funds that have been set aside for future commitments from the fiscal demands that arise from one Congress to the next.”
Another reason to fear government ownership of corporate stocks is “the issue of government control of businesses,” the CBO paper said.
“Holding private equities would give the government ownership rights, ownership responsibilities and the potential for involvement in a businesses’s affairs,” CBO warned. And that could lead to government interference in business decisons that could undermine the economy.
Let’s say, for example, that one of the corporations the feds invested in decided to close one of its plants in a cost-cutting move.
“Plant closings are usually undertaken to enhance the financial health of a company; however, with the government as a stockholder, the company could be pressed to operate the plant at a loss in order to protect jobs. Pressure for a bailout or other forms of subsidy could follow,” CBO said.
These are very strong arguments in behalf of the president’s proposed financing reform plan and against its chief Democratic alternatives. But what is most surprising is that CBO makes little if any objective attempt to disguise its general support for plan’s fundamental changes. Indeed, CBO seems to be making the central case for it.