The current debate on Social Security privatization has crystallized what is the central question (among many questions) that supporters of economic liberty ought to be asking the Bush administration and its think-tank backers. It is this:
If we are willing to put up with the fiscal consequences of partially defunding the present revenue stream that pays the benefits enjoyed by present and future retirees, and instead fund those benefits via trillions in new debt, why not push for a clean cut in the payroll tax as versus demand the creation of yet another mandatory savings program? The tax-cut approach would have the same fiscal result and at least have the merit of trusting people to manage their own money.
I can think of two possible answers to this challenge. First, it might be claimed that a clean payroll tax cut would be politically unviable relative to a new forced saving program. But this is not obvious at all. In fact, if politics of the last two decades teaches us anything it is that most any proposed tax cut would enjoy massive public support. The downside is the debt that is thereby created in absence of spending cuts. But the Bush administration dismisses this problem. So be it. If you are willing to tolerate vast debt accumulation, it would seem that tax cuts are the best approach consistent with liberty and genuine privatization.
Second, it might be claimed that our society needs some system of forced saving for old age; the problem with Social Security is not that it is coercive but that it is wrongly structured. This second claim is inconsistent with free market logic and human freedom itself. If someone had suggested in 1900 what is being called “private accounts” today—accounts collected from our paychecks at the point of a government gun and then returned late in life—he would have been called a socialist. Yet I sense that the privatizers starting to insist on the absolute merit of a forced private system.
Have I overlooked some third answer to my query, aside from the cynical expectation that this is really just a big shell game designed to shore up a failing system in the tradition of the Greenspan’s 1983 reform?
