So now we have two competing plans for Social Security from the presidential candidates, Messrs. Gore and Bush. Both are flawed.
Let's look at the strengths and weaknesses of each plan.
Vice President Al Gore's Retirement Savings Plus would give workers earning up to $100,000 a year an opportunity to save up to $2,000 a year, $4,000 a couple, for retirement tax-free outside of the Social Security system.
In addition, the Gore plan would provide matching government money to help lower-income workers accumulate assets in these funds, which will operate and be invested much like 401(k) plans.
The match would start at $3 for every $1 the worker put into the retirement savings plan, but would be phased down as income rose so that for people with incomes between $60,000 and $100,000, the match would be one government dollar for every three employee dollars.
The money could be invested in a range of mutual funds.
This plan is similar to the USA accounts proposed by President Clinton last year, but with a bigger government match. It is likely to stimulate some additional workers to save for retirement, but unless carefully designed it could simply move money from corporate 401(k) plans into the Retirement Savings Plus plans.
And it does nothing to solve the long-term Social Security problem. The vice president separately has proposed addressing this problem by using the current Social Security surplus to pay down the national debt, and then using the savings on national debt interest payments to fund Social Security.
There are a couple of problems with this idea. First, the current surplus in the Social Security program already has been included in the federal budget surplus and therefore already has been earmarked.
Mr. Gore himself has proposed numerous ways of spending the federal surplus in addition to paying down the national debt. For example, his matching of employee contributions would come from the surplus. And the new Congress will have its ideas on how to spend any surplus that might occur.
It seems likely, therefore, that the surplus will be strangled at birth, long before it can grow up to pay down the debt.
Second, if by some miracle the surplus is not spent, and the interest savings are available, the amount will be a drop in the bucket compared with the unfunded Social Security liability -- calculated between $4 trillion and $11 trillion, depending on the assumptions used.
In effect, the unfunded Social Security liability is estimated at anywhere from equal to the funded national debt in the hands of the public to almost three times as large.
That unfunded liability represents promised benefits to millions of workers. The benefits still have to be paid somehow, and Mr. Gore's plan doesn't change that and doesn't begin to meet the need.
Third, there are doubts as to how many low-income workers will be able to save enough to generate a meaningful government match.
Texas Gov. George W. Bush's proposal would allow all workers, if they desired, to invest up to 2% of their Social Security contributions in market-related investments in individual accounts. This is a far simpler proposal.
One of its strengths is that all workers covered by Social Security already pay Social Security taxes. The 2% to be put into individual market-invested accounts would not be an increased burden on them.
Even low-income workers therefore would be able to easily invest in the market, if they so desired.
It has one other thing in its favor. Employees would own the accounts into which they put their 2% of pay.
Now employees have no legal claim on their Social Security accounts or the benefits they have accrued under the system. The benefits can be changed, or even eliminated, at the whim of Congress.
Under the Bush plan, that would change for at least the assets in the individual self-directed accounts.
The great defect of Bush's plan is that it is not ambitious enough. If 2% is good, why not 4%? Why not all of the Social Security tax?
Under the Bush plan the current unfunded Social Security liability would still have to be paid, as it would under Mr. Gore's plan, although younger workers investing their 2% would not have the same claim to promised benefits as current workers, so the ultimate liability should be reduced.
The unfunded Social Security liability will have to be paid from taxes as it falls due, or benefits will have to be cut.
Neither plan changes that.
