January 25, 2005
Privatization Thoughts
Here's a thought experiment for you.
Aside from the part about cutting the money that goes to Social Security, what is the difference between voluntary privatization (or "private accounts" or "personal accounts"), and a Traditional IRA?
Why do we not make the point that our existing IRAs and 401(k)s contribute to the funding of Social Security?
(Answers: Not much, and Because it's frigging dumb.)
So if the GOP believes this to be about greater personal choice, why not just raise the maximum contribution to an IRA? Or create a new kind of IRA that would be converted into an annuity upon retirement? I'd be in favor of either, and neither would mean you'd have to cut Social Security.
Update: One commenter on a different thread made the point that one difference is that a poor person wouldn't be able to afford to send an extra few thousand dollars to an IRA, when they could if it were diverting payroll taxes (and thereby cutting social security). So... maybe the answer is to raise the amount before people start paying into social security (and also raise the cap after with they stop paying), and have that first bit go into an IRA automatically instead.
"So if the GOP believes this to be about greater personal choice, why not just raise the maximum contribution to an IRA?"
Because the fundamental arguement is over the tax rate. The GOP beleives that more money in the people's hands drives the economy better than more money in the government's hands. That's the high level. That's what's meant by more choice. It's more choice over the money you earn rather than turning it over to government.
Yeah, I agree that that is what they are really saying. That it really is cutting the taxes that go to Social Security, and therefore cutting Social Security benefits. It's be a more honest discussion if they just made it about that - but so many of the privatization proponents are running away from that argument, and trying to paint it in other less honest terms. Oh well.