Comments to the PSCCC

[Mbindnerdc@aol.com]

I have provided the following text to the President's Commission to  Strengthen 
Social Security.  The staff has responded by stating that it has  forwarded 
these comments to each member of the commission.  Whether that is  the case or 
not is an open question, as I have worked on enough staffs to  know that 
commissioners do not necessarily read their mail.

 The Commission is over a barrel, and it knows it.  If they go as radical as  
last week's analysis suggests they will, their plan will be DOA in the  Senate. 
 Time is also not on their side, as the taste for divided government  by the 
American voter indicates a Democratic House starting in 2003.  The  individuals 
on the Commission are not stupid, so I predict they will attempt  to design 
something that may pass the smell test.

 Progressives can do one of two things - insist on certain provisions which  
eliminate the equity concerns in the standard libertarian plan or use the  
issue politically and stonewall.  I favor the former, as many of you know  from 
my prior writings.  I have seen what the DLC-types have proposed and as  a 
progressive I cannot sanction it.  The President has opened the  Privatization 
Pandora's Box - without using the word.  This allows for a more  progressive 
response than was allowed under the last administration, when IAF  and others 
seemed deaf to dissenting views.

 The proposals which follow, if implemented fully, will lay the groundwork for  
something more radical than distributed ownership of the stock market - which  
the Clinton plan would have done.  They would lead to worker control of the  
workplace.  Instead of saving the stock market, it would end it as firms rely  
on self-financing for capital.  

 Even if they are not implemented, but only discussed, these proposals would  
end the privatization debate - as much of the impetus for it comes from the  
perceived mismatch between payroll tax revenue and benefits would be removed  
if revenues were raised solely from employers on a per-head rather than a  
percent of income basis (with adjustments for higher and lower than average  
wage per employee firms).

As I intimated at the outset, I have little faith that the former Senator  from 
New York or the COO of AOL-Time Warner will read what has been  forwarded.  
However, if Mssrs. Greenstein, Orszag and Aaron and others from  the left of 
center analytical community echoed these points, I am sure they  would find 
ears on the commission.  In that case, two things could happen:   One - they 
are convincing to Commissioners of both parties who know that if  they don't 
pass a fillibuster-proof solution now, they don't pass anything;  or Two - 
these points are sufficiently compelling to the progressive views of  the 
Democratic commissioners to prick their liberal consciences.  The  proposals 
can then be used to raise issues that the conservatives on the  commission will 
never go along with (especially the equal crediting of  employer contributions 
regarldess of income) and thereby stymie the work of  the commission.

Without further adieu - my comments:



The following comments were provided to the President's Commission to 
Strengthen Social Security by Michael Bindner, Director of the Iowa Center for 
Fiscal Equity.

The most important concern in any reform effort is equity.  At the very  least, 
the current progressive nature of benefit distribution must be  replicated in 
any private investment plan.  

The vast majority of the current proposals fall short of this, as they call  
for the investment of a certain percentage of payroll taxes.  As benefits are  
calculated based on the average income in society, these proposals would  leave 
the vast majority of individuals worse off in terms of real benefits  received. 
 This cannot be allowed.

There are ways around this problem, which also guarantee that insurance for  
non-retired survivors, disability insurance and health insurance are  separated 
from the debate on retirement insurance.  Let me offer the  following proposals:

Transfer the responsibility to pay non-retiree payroll taxes entirely to the  
employer.  In doing so, split the survivors insurance account into survivors  
of retirees and survivors of non-retirees.  I estimate, based on the number  of 
non-retiree survivors, that 6% of OASI taxes would cover their insurance.   
Therefor, payroll taxes corresponding to 2.65% of income below the income cap 
and all HI costs above the cap could be transferred to employers, with the  
provision that they may decrease gross pay but not net pay to offset this  cost.

In the same way, to provide for an equitable distribution of funds for  
personal retirement accounts, transfer payroll tax responsibility for an  
additional 1% of income to the employer, with a corresponding drop in gross  
wages.  

The employer would then invest an amount for each employee based on 2% of  the 
average taxable income of either the firm or of society.  If the  latter option 
is taken, firms with a higher than average income would pay a  surtax on their 
total payroll tax payment, while those with incomes less than  the average 
would receive a tax credit.

 ---

I am deeply concerned with the administrative costs which are inherent with  
privately managed accounts.  These costs should not be taken from account  
income.  Rather, so that employers have an incentive to find the lowest cost  
system, I recommend the following provisions:

 - require that employers finance the costs of administration.

 - allow employers to offer their employees the option of investing their  
funds in the voting stock of the employer.  This would greatly increase  
national savings and investment at little cost and, by specifying that voting  
stock be used, would allow workers a greater stake in the company and more  
control of their monies.

 -  for employees covered under organized labor contracts, allow them to  
designate their labor union to manage their accounts, whether investment  
accounts or employer voting stock.


I am deeply concerned that much of the attention to this issue comes because  
of the perception of some tax payers that they are penalized by the  
redistributional aspects of the program.  There are two ways of ending this  
perception.  

The first is to eliminate redistribution -   which some suspect is behind the  
effort to create investment accounts. I predict that no plan will path that  
even remotely has this effect.  Further, if it were to pass, it would fail as  
it would put seniors back into poverty at unprecidented rates.

The second alternative is to correctly account for revenue received.  To do  
this, credit all employer contributions on an equal basis, regardless of  
income - as described above.  If this is accomplished, the entire system  could 
be privatized without loss of equity.

 --

 Finally, no investment strategy will solve the real economic problem with  
society, the baby bust of recent years.  To put it bluntly, the latter cohort  
of baby boomers and generation X are having less children.  To save Social  
Security, this trend must be reversed.  The President's plan to increase the  
child tax credit is a step in the right direction.  However, it does not go  
far enough.  The tax credit for each dependent spouse and child should be  
increased to actually cover the cost of child rearing - to $6,000 per child.   
In doing this, the personal exemption for children could be abandonned.  This  
credit should be paid regardless of income and should be paid with each pay
 check.  Full time workers would get the full credit, while part-time workers  
would get $3,000 per child, per job - but no more than $6,000 per child or  
dependent spouse.  Nothing short of this will turn the tide on the population  
bust, or save the system.

Good luck in your efforts,

Michael Bindner
Iowa Center for Fiscal Equity - Washington Office
1420 W. Abingdon Drive, #138
Alexandria, Virginia 22314

 703-684-3239