Oakland, Calif. Feb. 4While on the surface, President Bush seemed to advocate restraint in government spending in his recent State of the Union address, a closer examination of his rhetoric reveals that the Presidents proposals will not reduce the role of government in our economy, says Independent Institute economist Benjamin Powell. Instead, they simply change the way government intervenes.
The centerpiece of Bushs Social Security reform is voluntary personal retirement accounts. Yet what Bush means by voluntary is that young workers can stay in the current system, or go to his system where eventually up to four percentage points of workers payroll taxes will go to a personal investment account, continues Powell. If these accounts were really voluntary workers would not be forced by a tax to contribute at all. They could either save in a manner they choose, or not at all.
Social Security is clearly the biggest item on the Presidents domestic agenda, says Powell, yet all we heard was a bundle of contradictions and presidential double speak. Only in politics can voluntary mean not voluntary and can your money not be yours, Powell argues.
Bush promises that under his plan the money in the account is yours and the government can never take it away. We should not kid ourselves. Just like other private money, the government can always reduce the value of these accounts through future changes in the tax laws and inflation. The Bush individual retirement accounts also come with restrictions that will limit the type of investments you can make and the amount of money you can withdraw. Is the money in this type of account really yours if you cannot decide what should be done with it? The Social Security reform Bush outlined in his State of the Union address is not voluntary and it doesnt create purely private accounts. It just creates a new version of government mandated and regulated retirement savings.
A prosperous economy and secure retirement can be achieved in a voluntary society, but Bushs state of the union address should not be interpreted as a significant move in that direction.
Available for interviews, Benjamin Powell is the Director of the Center on Entrepreneurial Innovation at the Independent Institute and a Professor of Economics at San Jose State University.