Thursday, June 09, 2005

Retirement Accounts

So far in this blog, I have probably looked pretty left-wing, maybe even verging on loony left. What can I say; I live in San Francisco. However, I do feel it's about time to show my conservative, right-wing, downright "mossback" side. (It's only a side; I don't whole-heartedly endorse the mossback philosophy.)

President Bush has been talking quite a bit about Social Security and especially private retirement accounts. This is an issue on which I find myself to the right of President Bush.

Social Security taxes should be used only to pay for the benefits necessary to ensure that, as President Bush says, "if you worked all your life in a tough job and you contributed to the Social Security system, when you retire, you ought not to retire into poverty." That's it. Social Security is a safety net to keep people out of poverty. It is not, never has been and never should be, a full-fledged pension plan. It is the ultimate "loony left" idea to think that the government should provide your entire retirement.

The balance of your retirement planning should be composed of true private accounts. The distinction between President Bush's fake private accounts and the genuine article is clear. In a true private account, you decide how much you contribute, you decide what risk level is appropriate for you (certificates of deposit or penny stocks or somewhere in between, or better yet a mix of investments), and you decide where to invest. President Bush proposes to set up a very small number of government-established mutual funds into which you can divert your mandatory payroll taxes and hope that they do better than your Roth IRA.

We already have private retirement accounts. They go by names like IRA, Roth IRA, Keogh, 401(k), SEP, and SIMPLE, and I'm probably leaving out a couple. If Social Security as it is currently set up is not enough to provide a happy retirement (Duhhh!), then you need to get yourself over to one of those private retirement accounts. That's called "personal responsibility," which I seem to recall that President Bush favors.

Of course, the reality is that many people, especially if you're living paycheck to paycheck, find it difficult to set aside money for 30 or 40 years from now. We want to get new sneakers and video games and big-screen TVs (and food, clothing, and shelter, plus the occasional medical care) right now. Saving for retirement isn't "sexy."

The appropriate role of government in such a situation is to encourage and facilitate responsible behavior, not to replace it with government bureaucracy. There are many ways we can do that. We can tinker with the particulars of various IRA-type accounts. For example, the dollar limit for annual contributions was recently raised. Maybe we could add a checkbox to the W-4 form (where you tell your employer how many exemptions you are claiming, in order to calculate your income tax withholding) for a monthly retirement contribution; say, for example, put $75 per month into IRA account #123456789. Maybe we could find a way to make it easier to put part of your income tax refund into your retirement account, since the tax refund is the one way that most working people save money. In the mean time, we should not raise mandatory payroll taxes to pay for fake private accounts. Taking money out of the Social Security Trust Fund to pay for fake private accounts only makes it more difficult for individuals to save for their retirement.

The way that Bush is proposing to set up fake private accounts would create a handful of unelected, unaccountable bureaucrats who would administer these multi-trillion dollar mutual funds. If you give me a couple of trillion dollars to invest, I suddenly become one of the most powerful people on the planet. I can make or break a medium-sized company with a wave of my hand. Of course, a bureaucrat installed by George W. Bush would never make investment decisions based on partisan political considerations, right? On the other hand, a bureaucrat installed by that paragon of personal integrity William Jefferson Clinton would never invest in a partisan way, either. Both honorable patriotic Americans would invest wisely in oceanfront resort property in North Dakota.

One trillion dollars looks like this: $1,000,000,000,000.00. Can you wrap your mind around all those zeros? It's a million times a million dollars. Imagine a world in which winning the Lotto jackpot is almost as important as picking the lint out of your navel.

One thing on which both the Left and the Right should agree is that President Bush's fake private accounts are an incredibly bad idea, across the board.