Subtracting the add-on account

Author: Marie Cocco

Published: March 23, 2005

It?s time to subtract the "add-on" account from the Social Security equation.

For those insufficiently fluent in the political jargon surrounding President Bush?s push to privatize part of Social Security, the idea of an "add-on" account - that is, a government-subsidized savings account that would be added to the current Social Security system, rather than carved out of it - has become the new new thing. The buzzword is suddenly hot in the congressional lexicon because an old thing - tried and true Social Security - is proving to be so popular with average people that the president?s top domestic policy priority founders on Capitol Hill.

So before it?s too late, let us define the "add-on" account accurately: A massive new entitlement program of questionable value that would likely be financed by more deficits and debt.

You may notice that this definition is missing from the politicians? dictionary. That?s because "add-on" accounts already have become a broad, bipartisan fig leaf.

Republicans are wary about the growing unpopularity of the president?s plan to allow workers to divert part of their Social Security payroll tax money into private accounts. Accounts created this way don?t solve Social Security?s future financing problems - they worsen them by taking out money that?s already been earmarked to pay promised benefits. The public has accurately sized up this pig-in-a-poke and isn?t buying it.

But conservatives must remain true to their faith that the answer to every problem is to privatize it. So some Republican lawmakers are now saying they might look to "add-on" accounts as a way to "create wealth" among lower-income workers who find it impossible to save. Roughly speaking, the accounts would involve the federal government providing financial incentives, perhaps even a "match" like those some employers make to 401(k) accounts, so that average workers can boost their savings.

Democrats have drawn a line around Social Security and won?t discuss any options for revising it that do not first address the program?s long-term fiscal health. They have so far enjoyed great political success with this simple, clear-eyed approach. So being Democrats, some of them toy with abandoning it.

They fret over nasty charges Republicans might one day make against them. They fear being depicted as the party that dampens the hopes of striving Americans to become the next Bill Gates. So these Democrats, too, are warm to "add-on" accounts. After all, Bill Clinton once proposed them, didn?t he?

Yes he did. But here?s the difference between the Clinton era and the age of Bush. Clinton had the money to pay for creating these accounts. Bush doesn?t.

I will not belabor the fine points of how the now-vanished budget surplus became a staggering deficit. But the fiscal 2004 deficit was $412 billion, according to the nonpartisan Congressional Budget Office. The House and Senate are currently debating budget resolutions that would push deficits even higher than they would otherwise be if Congress merely continued its current, out-of-whack policies. And of course the congressional budgets anticipate more tax cuts - as much as $106 billion more under the House proposal.

Most of these reductions are cuts in capital gains and dividend taxes, and would go where they?ve gone for the past four years. That is, not to the wannabe wealthy. To the already wealthy.

Most of the benefit from them would flow to households with annual incomes of more than $1 million, according to the Urban Institute-Brookings Institution Tax Policy Center.

So we know congressional Republicans are all for wealth. But are they really for making workers wealthy? If some form of "add-on" account were created to supplement Social Security, how would they raise the trillions to pay for it?

Probably the same way they pay for everything else: By borrowing from the money workers are paying into the Social Security trust fund and from the public at large. Average workers with "add-on" accounts would pay for them through higher and higher taxes needed to climb out of deficits and debt. Some deal.

If Democrats buy into this scam, they?ll relinquish their political progress in being seen as the more fiscally responsible party. And they?ll only help shortchange programs that we know really do help create wealth, such as college tuition assistance.

"Add-on" accounts are another diversionary tactic in the war over Social Security?s future. They amount to a fiscal shell game in which the most obvious winners are lawmakers who might get to use them as a political escape hatch.