Kudlow on Social Security
Yesterday Larry Kudlow explained in his show why you cannot solve the pending financial storm in social security without personal savings accounts (emphasis mine):
The reason? The private account option would finance benefits through stock and bond market returns. Without private accounts, benefits will be funded only by higher tax payments from the government.Kudlow's earned himself a warm spot in my heart.
Higher taxes will stall the economy and benefits will suffer accordingly. But the thrift savings account model of benefits throws off a 6.7% yearly inflation-adjusted return, far superior to the 1.8% post-inflation estimate of future social security.
The market is more reliable over the long run than the government. As more and more people choose market benefits from private accounts, fewer and fewer will demand government benefits. Over 50 years, government benefits will shrink from lack of demand. And so will the unfunded future liabilities of the system.
Call it the substitution effect. Not until the White House or Congress moves to private accounts will social security insolvency ever be solved.
I would choose some combination of the Ryan-Sununu bill or the plan submitted by Senator Chuck Hagel. I would reject any and all benefit cuts or tax increases. And if we choose the private account path, the economy will prosper from a flood of new saving and investment, while people get more comfortable and safer retirement benefits.
In other words, choose economic freedom over government entitlement.
posted by Fausta @ 8:20 AM
2 Comments:
I have a question, this from Larry's statement:
"Higher taxes will stall the economy and benefits will suffer accordingly."
Why is that accepted as truth? Clinton raised taxes, drastically I might ad. The economy didn't crash. Reagan raised taxes, the economy didn't crash.
It also speaks to the stupidst thing Republicans do, cut taxes for everything. Surplus -- cut taxes, recession -- cut taxes, deficits -- keep cutting taxes.
The one thing the GOP always had on Democrats was voter trust on handling the economy. There's a reason that is no longer the case.
And while we're making Larry look dumb:
"And if we choose the private account path, the economy will prosper from a flood of new saving and investment, while people get more comfortable and safer retirement benefits. "
Not true, know why? Because there is no NEW saving. 6% is always coming out of my check, never more than the 6%. Now, take out 6% and then offer me a government style match of 50 cents on the dollar (like a 401K) then NEW savings are entering the market.
Now, you'll say that the private account where up to 4% can be invested is new right? No, not when you have to borrow money to make up the 4% that needs to go to retirees. It's a net zero addition to the national savings rate.
Okay, done ranting.
Anonymous,
I refer you to this well-documented article on the Laffer curve: lower tax rates have on work, output, and employment--and thereby the tax base--by providing incentives to increase these activities. That happens because People do not work, consume, or invest to pay taxes. They work and invest to earn after-tax income, and they consume to get the best buys after tax. Therefore, people are not concerned per se with taxes, but with after-tax results.
I am puzzled by your statement on Reagan. He reduced the highest marginal income tax rate from 70 percent (when he took office in 1981) to 28 percent in 1988. Clinton reduced the capital gains tax rate from 28 percent back to 20 percent in 1997 was an unqualified success, and every claim made by the critics was wrong. The tax cut, which went into effect in May 1997, increased asset values and contributed to the largest gain in productivity and private sector capital investment in a decade. It did not lose revenue for the federal Treasury. The same thing happened with Reagan.
When it comes to Social Security, I suggest that the results in Chile speak for themselves.
I know for a fact that when I'm old enough to collect Social Security, there won't be any left to collect if things continue under the current plan. 12% comes out of the check of the self-employed, and that's gone. The solvency question is a big issue but if the young are able to make their own private investments, fewer and fewer will demand government benefits, as Kudlow said.
As for making Kudlow look dumb, I certainly wouldn't try.
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