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Blinder, Aaron Attack Personal Accounts
August 28, 2000
In a
Washington Post op-ed published Thursday, the Brookings Institution's
Henry Aaron and Gore campaign adviser Alan Blinder critique a Social Security
reform plan by Harvard University Professor Martin Feldstein. Their arguments
against Feldstein's proposal to let workers invest a portion of their payroll
taxes in personal retirement accounts are off base, says Cato Institute Social
Security Analyst Andrew Biggs:
"Blinder and Aaron make three main attacks on Feldstein and, by implication,
other proposals to reform Social Security through personal accounts. First,
they criticize Feldstein's proposal to allow Social Security to borrow temporarily
from the Treasury during the transition period. But Social Security would repay
that money, with interest, and afterward would be self-funding forever. By contrast,
Vice President Al Gore's Social Security plan envisions trillions of dollars
in general revenue transfers to Social Security that would never end and never
be paid back.
"Second, Aaron and Blinder charge Feldstein with phony bookkeeping, saying
he 'turns what appears to be merely shifting payroll taxes from one account
(the Social Security trust fund) into another (individual accounts) into a major
source of new national saving.' This assumes that the trust fund is a real asset
that contributes to national savings. But even the Clinton administration admits
that trust fund bonds are not 'real economic assets that can be drawn down in
the future to fund benefits. Instead, they are claims on the Treasury that,
when redeemed, will have to be financed by raising taxes, borrowing from the
public, or reducing benefits or other expenditures' (FY 2000 Budget, Analytic
Perspectives, p. 337). By contrast, personal accounts holding stocks and corporate
bonds would pay future benefits without tax increases. There is every difference
in the world between real economic assets and IOUs to be repaid by future taxpayers.
"Finally, Blinder and Aaron attack Feldstein for assuming that, without personal
retirement accounts, Social Security's payroll tax surpluses will be spent rather
than saved. But until recently no payroll tax surpluses were saved-all were
used for higher spending or lower taxes, and there is no reason to believe that
future Congresses will act differently than past ones."
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