Jewish World Review May 30, 2000 / 25 Iyar, 5760
George W. Bush made it so with his decision to propose allowing Americans to devote a small portion, perhaps one-sixth, of their payroll taxes to personal retirement accounts invested in some well-established stock and bond funds. Because the crisis of the system, although predictable, is not imminent, dealing with Social Security's future just now is optional and potentially hazardous, politically. Therefore Bush is demonstrating leadership. He also is plucking up a banner from some Democratic senators.
It will be many years (how many depends on the economy's performance) before the imbalance between Social Security revenues (produced by a declining ratio of workers to retirees) and promised benefits becomes acute. There can be three ingredients to a solution--cutting benefits, raising payroll taxes (close to 80 percent of Americans already pay more in payroll taxes than in income taxes) and causing retirement resources to grow faster than they do under the current Social Security system.
This third is the core of Bush's solution. Al Gore's proposal is to increase benefits (for working mothers who take time off to raise children) in the near term, and in the longer term--here Gore's plan is a more radical departure from Social Security's premises than Bush's is--to turn Social Security into a welfare program by large infusions of general revenues.
Gore says Bush's plan would put retirement resources horribly at risk. Gore compares participation in the stock market to rolling "dice" or playing "roulette" in a "casino." His rhetoric radiates fear and incomprehension of one of America's central economic institutions, by which capital is raised and allocated to productive uses.
Gore's rhetoric has about it the ring of the '90s--the 1890s, when Wall Street was feared and demonized. Today polls show that the only age cohort opposed to some modest diversion of payroll taxes to personal retirement accounts is Americans over 70. And among voters under 35, there is support of landslide proportions. If Gore does not understand why, he evidently missed the 1990s. Writing in National Review, Ramesh Ponnuru notes that in 1989, a high priority of the new Republican president, George Bush, was a cut in the capital gains tax. He could not get it. In 1997, a Democratic president signed a capital gains tax cut. What had changed? A number of things, but most important was the process that produced this number: Between 1989 and 1997, more than 25 million additional Americans became owners of stocks.
Democracies make difficult decisions under the lash of necessity. Americans radically changed the role of the central government in the 1930s not because they read John Maynard Keynes's "The General Theory of Employment, Interest, and Money," but because a large event--the Great Depression--frightened them. Sixty years ago this month, the British, having consigned Churchill to the wilderness for years, brought him to power only because German forces were rampant across the English Channel. In the 1960s, America came to grips with its racial problem because it had to--as a result of civil, and uncivil, disobedience, it could no longer have a comfortable conscience or domestic tranquility.
No comparable exigency compelled Bush to put Social Security reform at the center of the campaign. But, then, considerations of equity are a kind of exigency. Personal retirement accounts would be sound social policy even if Social Security's condition were not actuarially ominous. Such accounts are implements whereby people of modest means can, over a 45-year working life (about average), with the help of what Keynes called "the magic of compound interest," build wealth.
Two years ago two Democratic senators singularly informed about Social Security, New York's Pat Moynihan and Nebraska's Bob Kerrey, proposed that employees be allowed to put approximately one-sixth their payroll taxes into personal savings accounts. According to Moynihan, a worker who spent 45 years at Bethlehem Steel "could easily find himself with an estate of half a million dollars."
This speaks volumes about the recent transformation of American politics: It is the Republican presidential candidate, a conservative, not the Democratic candidate with labor's backing, who is embracing Social Security, the central program of the welfare state, as a vehicle for advancing an egalitarian
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