Gingrich's Social Security plan is insane.

[izixs]

The primary goal of social security is to provide guaranteed income to senior citizens and the other wise disabled, people who are very unlikely to be working, so that we don't have people starving in the streets or stuck in poor houses being fed gruel. People don't deserve that. So I'll give Newt credit for at least recognizing that as a fundamental premiss of the program.

As social security exists today, all of its money hangs out in a fund separate from the rest of the government. As such, spending and tax issues that don't involve changes in social security or payroll taxes have no effect on social security. None. So any notion of cutting elsewhere in the budget makes no sense when talking about social security, neither is raising or lowering income taxes, capital gains taxes, tariffs, or anything other than the payroll tax.

However, the rest of the government does borrow money from the social security fund as has been mentioned through the social security fund purchasing treasury bonds and the like. This lets the rest of the government borrow at very low interest thus saving it money in the long run by not upping the payments needed for interest on the national debt. Hurray, lowering the deficit.

To change social security to a more for profit/privatized system would fundamentally change this relationship. Yes, you might be able to get a higher rate of return having your 'share' of social security invested elsewhere, but at the same time, the non-social security budget might have to borrow from those not willing to grant as low interest rates (or if you're feeling nationalistic, having to borrow more from China, ooh scary). The higher interest rates is a likely result as the social security fund is now much less likely to buy treasury bonds and the like as they give crap returns, thus decreasing the demand for them. This decreased demand is likely to yield an upping of the interest rates on this bonds, which means higher payments for the rest of the federal government. So more deficits.

Then... if you also are providing a means for subsidizing personal risk taking, a sort of TARP for old folks, that money has to come from somewhere. So you either have to break the barrier between social security and the rest of the government (fun mess that will be) which would also break the barrier between these private investments and the federal budget (could possibly make it easier for folks to cut social security in total as its now a budget related item), or you require a certain portion of each personal social security holding to be set aside as investment insurance of some sort. Yes, there are securities and things that are low risk and good return, but not everyone, if given the chance, will go for them. There will be a number of folks who will put this money towards very risky adventures. Inevitably a number of them will fail, with more of them failing when the economy gets rocky. So suddenly, when everything is going crazy in terms of the economy, the government suddenly has to manage minimal payments for folks who took big risks. That money either has to come from other social security holder's 'insurance fund' (or some other similar voodoo) or it has to be budgeted. If the setup is the second choice and the political will to spend is weak (like it is now), you'll have a collapse of the social security system as minimal payments are not made. If the insurance fund kicks in, you'll have lots of people upset as part of their now private investments are going towards paying off people who invested poorly. Either eventuality is terrible and should be avoided. The same goes for a system without a guaranteed income as you might as well not have social security in the first place without it. Which means elderly people starving in the streets. Also unacceptable.

And for means testing of the wealthy in all this mess... when you can start saying some group X doesn't deserve social security, you let politicians create the definition for what X is, which could be pretty much anyone they don't like that week. This becomes very important if congress has to authorize social security bailout funds. I think I'll pass.

There is only one sane way to 'fix' social security (though it won't need it for quite some time), and that's making changes to the payroll tax. The easiest of which is to move it from being a regressive tax and make it an actual flat tax. Republicans love flat taxes, so why do they not like this one? I don't understand... oh wait, I think I do. :-p