U.S. Treasury Secretary Henry Paulson released a report last week intended to light a fire under Congress to do something about Social Security. In the report, Treasury claims (quoting):
- Social Security faces a shortfall over the indefinite future of $13.6 trillion in present-value terms.
- Delaying changes to Social Security reduces the number of cohorts over which the burden of reform can be spread. Not taking action is thus unfair to future generations. This is a significant cost of delay.
- By itself, faster economic growth will not solve Social Security’s financial imbalance—realistically, there is no way to “grow out of the problem.”
So far so good, but then the secretary adds:
- Social Security can be made permanently solvent only by reducing the present value of scheduled benefits and/or increasing the present value of scheduled tax revenues.
In other words by raising taxes or cutting benefits. Here we go again!
Instead of lighting a fire under Congress, what the secretary has done could burn some Republicans—a bunch of them.
Most Republicans in Congress believe strongly that we need to do something about Social Security. And most Republicans have taken Americans for Tax Reform’s “no new taxes” pledge. So what the secretary has done has told the world that if Congress is to reform Social Security, legislators will have to break any anti-new tax principles they might have.
Nothing like campaigning for re-election with the George H.W. Bush (41) “Read my lips” cloud hanging over your head. You know, it worked so well for him!
The Institute for Policy Innovation’s Peter Ferrara and Larry Hunter have shown repeatedly that we don’t have to raise taxes or cut benefits. That personal accounts can, over time and in conjunction with a few other actions, resolve Social Security’s long-term funding crisis.
Ironically, given the Bush administration’s poll numbers are so low, Republicans might be able to use the administration’s missteps to their advantage. Social Security reformers could use this as an opportunity to separate themselves from the administration and proudly proclaim that they believe personal accounts, and only personal accounts, can save Social Security.