Thursday, May 15, 2008

John McCain on Social Security

Courtesy of The Wonk Room, which takes a decidedly negative view of McCain's staement, is a short passage on Social Security reform from, of all places, the Regis and Kelly show:

MCCAIN: What should be partisan about the fact that Social Security is going to go broke? I mean, should we be divided up among Republican and Democrat…

REGIS: Do you have a plan?

MCCAIN: Yes, sir. It’s gonna require, though, cooperation and participation by the other side. And I’ll reach my hand out…

REGIS: Is it privatization of the Social Security program?

MCCAIN: No, no it isn’t. But I would say that I support…I’d put everything on the table to start with…but second of all…young workers ought to be able to put part of their salary, part of their taxes into Social Security, into an account with their name on it. But that would not in any way effect older workers. But you’ve got to have a negotiation.

The running question underlying this and previous statements from McCain and his campaign is whether he supports so-called "carve out" accounts funded from the payroll tax or "add-on" accounts funded with additional contributions.

Here is the McCain campaign's "official" position on Social Security reform:
Reform Social Security: John McCain will fight to save the future of Social Security and believes that we may meet our obligations to the retirees of today and the future without raising taxes. John McCain supports supplementing the current Social Security system with personal accounts -- but not as a substitute for addressing benefit promises that cannot be kept. John McCain will reach across the aisle, but if the Democrats do not act, he will. No problem is in more need of honesty than the looming financial challenges of entitlement programs. Americans have the right to know the truth and John McCain will not leave office without fixing the problems that threatens our future prosperity and power.
This statement talks about accounts "supplementing" traditional Social Security benefits, which some have take as implying an add-on account, while today's statement seems to point toward a carve-out.

I suspect the true answer is that the "add-on vs carve-out" question hasn't really been decided, and at this point there probably isn't too much need to. Social Security reform will ultimately be a negotiated settlement between the parties, so what matters most will be the reform package, not the individual provisions.


Anonymous said...

"...because it hasn't been decided yet."

How long has McCain been a Senator?. He doesn't know what his own position is? He doesn't know what he favors?

No one is asking for a prediction of what the political process will ultimately produce. But aren't we voters owed a clear, unambiguous statement of what he actually prefers or supports?

The only reason to be circumspect is to have it both ways politically. That's not courageous at all.

Andrew G. Biggs said...

One problem is that whether a 'carve-out' personal account is desirable depends a lot on the rest of the plan. If the rest of the plan cuts traditional benefits a lot, then you might say that an entirely defined contribution plan isn't right. Alternately, though, if traditional benefits stay high -- say, as in Sweden's pension plan -- then a carve out may not be such a big deal.

Similarly, if the transition costs are "paid for" then a carve out is more attractive economically than if the transition costs are borrowed. But you don't know that ahead of time, which makes the decision harder.

Overall, I'm more skeptical than I previously was of being "for" or "against" a given provision seen in isolation.

Bruce Webb said...

It is important to note that using language like 'broke' or 'bankrupt' is itself dangerous demagoguery that goes well beyond the question of 'add on' vs 'carve out'. If we were having an honest debate then honest conservatives would immediately be pointing out that 'broke' in context means a benefit 25% better in real terms than a similarly situated retiree today.

Nearly everyone I talk to hears language like 'broke' and translates that to 'no check'. This is not in my experience an accident, it is a feature and not a bug in an organized attempt to sell Social Security 'crisis' in a number free context.

Anonymous said...

Your points about it all depends are fine. But McCain has been in a position to make those choices and develop a legislative solution for years and years. He has a very specific legislation to clean up professional boxing, but not Social Security.

Bruce, substantively you are right. Anyone who makes people believe the projected benefits in 2041 are going to 0 should resign from office. Neither taking a 20% pay cut nor getting fired are desirable, but they sure are different.

Bruce Webb said...

The site manager at Angry Bear invited me to put up a Soc Sec series from the informed amateur perspective and currently we are on post VII. Critiques from informed professionals are more than welcome. I am attempting to make a sustained assault on privatization at both the political and financial level and the debate could use some push back.

Andrew G. Biggs said...

I think we have the terms for a deal here: the right will stop saying 'broke' or 'bankrupt' when insolvency only means a 25% benefit cut, while the left won't call any reduction in promised benefits a 'slash' or 'a gutpunch to the middle class,' to use Krugman's words. In both cases, real benefits would be higher than today's so I think it's an even trade.