USA ACCOUNTS

Endorsement

In the minds of bureaucrats, the bigger solution is always better.  Here we are going to make Social Security more expensive and generous.  On top of that, the government will allow you to buy private insurance that does what Social Security is suppose to do in the first place.

We always reject the idea of improving the finances of Social Security by increasing the wages subject to payroll taxes.  This solution diverts taxes away from deficit control to Social Security.  Even with the higher taxes, this plan does not fix Social Security or even make it solvent.  While it does not increase taxes, it creates a new type of account which will cost extra to get.  Social Security is broken.  This plan allows you to pay extra to get what Social Security is suppose to provide on its own.  That is Tom Harkin's idea of not a tax increase. 

How Does It Work?

This plan has two parts.  The first part deals with a new type of account.  It is a private version of Social Security.  People would contribute to a pension that would be managed by private businesses.  The benefits of the new account mirror those benefits provided by Social Security - it is insurance.   The only difference is that the backer of the solution is private enterprise.

The second part 'strengthens' Social Security by removing the cap on wages subject to taxes.  As a perk, the plan would increase benefits for seniors.  This plan DOES NOT claim to fix Social Security or even address its financing problems. 

Strengths

The plan has no strengths, and demostrates little understanding of markets or business.

Weaknesses

This plan ignores the consequences of the Federal debt.  We raise money as payroll taxes that could have been used to paydown the debt.  This is wreckless economic policy.

This plan creates more welfare to augment Social Security which is already highly progressive.   "Because it is nearly impossible for low-wage workers to save enough for retirement, they would be eligible for refundable retirement savings credits that would be contributed directly to a USA Retirement Fund."  (page 6).  This segment might make more sense if all of the welfare were removed from Social Security.

Distortions

The wording of the plan leads the reader to think that this plan will fix Social Security.  It doesn't.  It 'strengthens' Social Security.

The plan promotes the idea that these changes would have little, if any, additional administrative burden, and employers would receive a credit to help off-set the cost.  Congress which can't be sued simply does not understand the concept of legal costs and burden.  This is an optional contribution mistakes in which may go back years. 

Open Questions

What is the assumed rate of return of private accounts?

What are the government programs that will be cut in order to support Social Security?