Monday, March 14, 2005

I must be missing something. First, George Will and now Jonah Goldberg endorse raising the Social Security wage base in order to get the Democrats to agree to personal accounts...


First, the Democrats will never agree to personal accounts. Second, it's a lousy precedent - agreeing to tax hikes for future promises - for the GOP to set (having raised the issue, as the old saying goes, we're now only discussing the price). But even were this not the case, it is still a lousy idea.

It's a lousy investment - raise your hand if you think that paying a multi-thousand dollar load (which the higher taxes represents the equivalent of) is worth being able to invest in one of Bush's personal accounts? Investors who pay loads almost NEVER get a high enough return to compare favorably with the no-load options out there. The personal accounts would (almost guaranteed) by taxed at ordinary income rates, just as Social Security payments and 401(k) withdrawals are taxed now - compare that to the 15% capital gains tax rate one pays now. The investment options available in these personal accounts would be extremely restrictive - making it even less likely that an investor could make a high enough return to cover the load.

Nor does it make sense on a macro-level. Giving $50,000 a year Joe Taxpayer the option of putting a couple points of his Social Security taxes into a personal account won't do anything to shift the electoral dynamic. So Joe puts $1,500 a year into his new personal account - he's supposed to start voting Republican all of a sudden? There is no correlation between holding equity and voting Republican - there are plenty of high-income/high net worth Democrats who certainly don't vote GOP. Heck, although it's not exactly the same thing, there are billions and billions and billions in 401(k) plans and I haven't noticed a surge in pro-business sentiment.