The Privatization Tax

I am in awe of the work that various analysts, but particularly Jason Furman of NYU and the Center on Budget and Policy Priorities have done to figure out exactly how the Bush Social Security plan would work, in the absence of any official details proposal, by just drawing on what's available and from on-background briefings by senior adminstration officials. (And speaking of the Center on Budget and Policy Priorities, congratulations on a new website and a new logo. It looks great. And how fitting that it should arrive at this moment when the Center's contribution is even more critical than usual.)

And I'm glad that the Senate Democrats could so quickly grab the import of Furman's work proving that the entire value of one's private account is likely to be taken away at retirement and dubbed it "the privatization tax." This isn't just a bit of clever pejorative framing, though. In the article I linked to a couple days ago from 1983, "Achieving a Leninist Strategy," in which two Heritage Foundation staffers advocated a long-term "political strategy" for Social Security privatization, there is a weird passage in which they discuss an "opting-out tax" as part of the system.

This comes in the context of a discussion of Great Britain's newly Thatcherized pension system, which had a secure part and an optional part. (not a good analogy, as the optional/private part was more comparable to our own private pension system and the guaranteed part that remained was more like Social Security -- in other words, Thatcher moved them to something more like the U.S. system.) The Leninists argue that the British system works because workers who opt out still have to pay some tax to support the public system. They write, "It does seem that the price people are willing to pay to leave Social Security is substantial."

That's a pretty odd thing to say. Do they really mean that they believe people are so eager to be "out" of Social Security that they would actually pay a price, in the form of the "opting-out tax," to do it? They would actually favor it if they were objectively worse off?

In other words, something like the privatization tax or the opting out tax seems to have been a part of this scheme for 23 years. But it's hard to imagine it's a political winner. I'm often amazed at the sloppiness of the privatization advocates. They seem not to have thought through most of the big technical and political questions they're dealing with. That generally reinforces my view that this is a little bit of a political show. But it is awfully weird to realize from the 1983 article that they've had the basic plan for almost a quarter-century but haven't bothered to work on it.