Isn’t This Just Social Security on Steroids?
Possibly hoping to tap disenchantment with the recent performance of the stock market, Workforce Management reports that
Powerful House Democrats are eyeing proposals to overhaul the nation’s $3 trillion 401(k) system, including the elimination of most of the $80 billion in annual tax breaks that 401(k) investors receive.
House Education and Labor Committee Chairman George Miller, D-California, and Rep. Jim McDermott, D-Washington, chairman of the House Ways and Means Committee’s Subcommittee on Income Security and Family Support, are looking at redirecting those tax breaks to a new system of guaranteed retirement accounts to which all workers would be obliged to contribute.
A plan by Teresa Ghilarducci, professor of economic-policy analysis at the New School for Social Research in New York, contains elements that are being considered. She testified last week before Miller’s Education and Labor Committee on her proposal.
At that hearing, the director of the Congressional Budget Office, Peter Orszag, testified that some $2 trillion in retirement savings has been lost over the past 15 months.
Under Ghilarducci’s plan, all workers would receive a $600 annual inflation-adjusted subsidy from the U.S. government but would be required to invest 5 percent of their pay into a guaranteed retirement account administered by the Social Security Administration. The money in turn would be invested in special government bonds that would pay 3 percent a year, adjusted for inflation.
Firstly, as with social security, is this not simply a pyramid scheme, where it becomes impossible for contributors at a certain point, probably fairly soon, to receive promised retirement funds because the kitty has been distributed to people ahead of them on the list? Or do these Congressional Democrats propose to augment this revenue by reinvesting it, say, in the stock market …?
More importantly, given the ease with which any future Congress can switch the flow of that new, 5% tax from those “special government bonds” to general revenue, it is not possible to create a secure, credible lockbox for this proposed program. In addition to all the perfectly valid drawbacks of efficacy and logistics which will be cited, this is perhaps the most significant flaw of the proposal. No matter how loudly and sincerely current members of Congress proclaim the sancity of that revenue, “Guaranteed Retirement Accounts” will never be viewed as “guaranteed” or as an “account” by anyone even slightly familiar with Congress’ track record of keeping promises in the area of taxpayer funds and other important matters.
Incompatibility and a lack of shared goals should also fuel this scepticism and resistance. With this program, millions of people would be placing their retirement funds in the hands of officials who, too often, are not guided by considerations of the long term or what may be best for their constituents but by what they think they need to do legislatively to get reelected in a couple of years.
This is not necessarily a defense of the stock market. The bursting of the bubble created by the Community Reinvestment Act (oh, look, another unnecessary crisis covered with the federal government’s fingerprints) has pretty much trashed our retirement accounts. But subjecting retirement funds to our government’s whim, i.e., to values and actions which are the antithesis of good retirement fund management, and then expecting to receive retirement income when we hit sixty five strikes me as untenable and ill-advised from the get-go.
[Thanks to commenter Anthony for the prodding on this subject.]