Vice President Al Gore earlier this year dismissed as “risky” and “stock market roulette” Texas Gov. George W. Bush’s proposal to let Americans invest in private investment accounts some of the 15 percent in payroll taxes they pay into Social Security.
On Tuesday, Gore apparently decided the risks of the stock market weren’t so bad after all. His “Social Security plus” proposal would let Americans invest in private investment accounts. It’s true that his proposal — unlike Bush’s — doesn’t draw from Social Security taxes themselves. Rather, the Gore plan establishes voluntary savings accounts, similar to Individual Retirement Accounts (IRA), that are separate from Social Security.
But it looks like Gore is trying to have it both ways — emulating Bush but not touching Social Security.
Gore’s plan would set up savings accounts for individuals earning up to $50,000 and couples earning up to $100,000 in which savings could be matched by the government at up to a 3-to-1 ratio. At lower income levels, Americans could invest $500 and the government would add $1,500 for a total of $2,000 a year. At higher income levels, the match would decline to a 1-to-3 ratio, so that people investing $1,500 a year would see a match of $500.
The money could be invested in broad-based stock and bond funds where it would grow tax-free and not be taxed until withdrawal. As with IRAs, hardship withdrawals to buy a first house, to pay for education or catastrophic illness would be allowed.
Gore’s plan has a worthy goal: to try to convince middle- and lower-income Americans that they really ought to be saving money.
But it is expensive–$200 billion over the next 10 years–and does nothing to fix the fundamental problem of Social Security as it is currently structured. That problem is this: At some point sooner or later this century, the trust fund will become statistically insolvent unless taxes are raised, benefits are cut, the retirement age is raised, the return on Social Security is increased beyond its current meager level or there is some combination of all the above.
There is no guarantee the Gore plan would help the neediest Americans, who are least likely to have the means to participate in a voluntary savings plan, even with these generous incentives. But it does establish a brand new middle-class entitlement. In fact, if the estimated 90 million Americans eligible to participate actually took the government up on all these generous tax credits, the plan would become a lot more expensive and would compete with Social Security for resources.
There are a lot of details still unknown about the Bush plan. But this much is known: It doesn’t add to the long-term liability the nation faces in keeping its retirement promises and it has the potential at least to reduce that liability.
