Thinking back on past Social Security wars where a Democrat tried to sell out the aged, I am reminded of Senator Moynihan of New York who was a poor historian but had media that pushed him as an expert on social policy by virtue of his being a member of the bipartisan commission that devised a plan to make Social Security develop a large Trust Fund (called by Reagan “keeping it from going bankrupt”) in 1983 – and was only stopped because Bill Clinton rejected Moynihan and his allies like Newt and refused to cut Social Security, instead proposing a voluntary savings program ADDON (as opposed to “carveout”) to Social Security in 1999.,
Moynihan disguised his carve out plan (his plan cut payroll taxes by nearly $700 billion, but would increased income tax revenues by slightly more than $600 billion) by taking from the Social Security plan by cutting benefits as he allowed workers to divert about 15 percent of payroll taxes into personal savings accounts. that would invest in stocks and bonds.
But like Obama, Clinton had been talked into a Social Security review by Rubin (Obama’s advisors are Rubin acolytes). The difference of course being Clinton’s rejection of that Rubin panel’s ideas, turning the savings idea in his State of the Union Speech into a voluntary additional benefit with no cut back in Social Security.
Moynihan wanted to take the payroll tax rate of 12.4 percent, divided evenly between the employee and the employer, and reduced it to 11.4 percent for the next two years and then be set at 10.4 percent from 2001 to 2024, then 11.4 percent from 2025 to 2029, then 12.4 percent from 2030 to 2044 and finally 13.4 percent in the following 16 years. If a worker did not establish ”voluntary investment accounts,” financed with the proceeds of the cut in payroll taxes, the workers could take their share of the tax cut as an increase in take-home pay equal to 1 percent of taxable wages. Moynihan obtained a few extra tax dollars by a more rapid rise in the taxable wage base, then at $68,400 a year and expected to $82,800 in 2003, by having it reach $97,500 by 2003. The benefit cut was again the CPI changing with the calculated CPI reduced by one percentage point from the annual cost-of-living adjustments in Social Security, veterans’ benefits and Civil Service and military retirement benefits – “saving” per the Congressional Budget Office about $224 billion in Social Security and $55 billion in other programs over the next 10 years. The revenue increase was again like the chained CPI suggestion with Americans paying $241 billion of additional income taxes in the following decade because there would be smaller changes in provisions of the tax code that offset inflation (bracket creep). Moynihan also speeded up the Reagan change to age 67 as the normal retirement age, which is completely phased by 2027, making the normal retirement age 67 in 2016, then to 68 in 2023 and 70 in 2073.
I must admit that idea of reducing the payroll tax so as to develop a smaller trust fund appealed to me – but none of the rest was necessary if the goal was a stable tax rate because the current program resulted in an actuarial imbalance that needed only a removal of the wage cap to remove that minor imbalance – it did not need to harm the aged. Moynihan even made a big deal of his idea not being same as a simple stock account because his stock account converted into a life annuity the then value of the account at some guaranteed rate per $1000 of value .
An incompetent historian who had pretended to be an economist gives bad – and mean spirited – actuarial advise and the media acclaims him as an expert on social policy. At least this time round they did not pretend Peterson was “an expert on social policy”.