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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.

Posted by Mark Schmitt on February 11, 2005 | Permalink


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I agree. CBPP is doing a great job of analyzing this one. I've posted their key paper links at a number of web sites. Credit to Bob Greenstein for making a difference in the discussion.

Just the facts, please...

Posted by: Movie Guy | Feb 11, 2005 7:58:17 PM

I still haven't wrapped my head around this whole "framing" thing that's all the rage now. On the one hand, "Privatization Tax" makes me snicker and seems like a good line to espouse. But on the other hand, is this steady drumbeat of "Birth Tax," "Privatization Tax," "Opting-out Tax" only reinforcing the Tax=Bad frame that the Republicans have been using to such devastating effect?

Not to say that establishing a Tax=Good counter-frame seems like very profitable work. But maybe we Dems should drop the word "Tax" in favor of something else. Theft? Fraud? It seems to me that a responsible future administration is going to need to pass a tax or two, and maybe we shouldn't be sharpening our knives with our ribs.

Posted by: Mo MacArbie | Feb 11, 2005 10:51:27 PM

I posted along this line of thought Here .

Mo, I agree framing and reframing is going to be critical to keep the pressure on.

For example, it looks like Bush may morph from diverting payroll taxes, to offering a refundable income tax credit that must be deposited in an otherwise similar plan. This idea goes in a direction some progressives might support, if it was done to get "the other 60%" to participate in increasing private savings. The plan I saw outlined was truly wacky; you get $1000 bucks a year. At age 67, you get 5% of whatever the account has accumulated, and if your account "beat" SS return, you get your account instead of the SS benefits; otherwise, the govt gets your account, and you get SS benefits.

Now, that's a wierd mix of several different ideas, if it was written up correctly in the news. It sort of lets the SS trust participate in equity investment, except that the equities are held in private accounts, except that the private accounts can only select from five government-run mutual funds.

But the GOVT has limited upside; it gets to avoid paying you SS benefits, if your account beats SS; though the GOVT would lose the income tax refunds at the 3% bond rate. And the govt would lose bigger, for any accounts that don't hit the 3% bond rate. But the account doesn't really belong to the individual, either. They either get it all, or just 5% of it. As I understood it.

Now, I think some variation of this theme might come out of some progressive's wierd dreams, if it were the right time for that. It really should be funded, and probably should be unlinked from SS, and should be set up as a "401K for the rest of us" where there is a government match for low income earners.

But we can be assured that the details would be mangled badly, or worse, it might just change the balance of thinking and we'd wind up with the President's phase-out plan packaged in new clothes.

As Kuttner said, paraphrased, it seems to be a time to let the President fall on his own petard.

Posted by: Buckaroo | Feb 12, 2005 2:36:23 AM

It's entirely possible that the idea and the strategy outlined in the Cato Journal article also came--independently--to others in the past 20 years.

It's also possible that the antithesis to Social Security was discussed in the debate leading to, and following, the 1935 legislation that established the Social Security Administration.

The Social Security system and other elements of the New Deal have long been considered socialist institutions. Their destruction has been on the right-wing agenda as long as I can remember. I was born in 1951.

There is more to this story, too, but it requires more knowledge of American history than I possess and much more space than I should take here.

Posted by: Jon Koppenhoefer | Feb 12, 2005 2:51:33 AM

With lots of NO! NO! NO!'s I do think that the "Privatization Tax" -- IF REQUIRED makes a perverse amount of sense.

I think that the concept is that when a person decides to start investing in their private account they opt-out of that portion of the shared account.

Thus, for example, if they invest 50% of what they would have invested in the shared account, then it makes sense that they should decrease their shared SS payback by 50%.

I agree this does not consider that SS is 10% a disability/life insurance, but nefer mind.

The thing that would make this rational is:

1) The choice is made when they Opt-out, not at retirement.

2) If the private account looses money, so be it, they don't have the Goverment to bail them out.

Posted by: Mike Liveright | Feb 12, 2005 3:35:32 PM

Let's not overdue our "awe."

In the meantime Consumers' Rights are being shredded, and families devastated by medical expenses are being sent to non-Bankruptcy Hell.

Posted by: Ellen1910 | Feb 12, 2005 3:53:26 PM

they've had the basic plan for almost a quarter-century but haven't bothered to work on it.

Maybe part of the answer is just that the opportunity to begin to kill Social Security -- long a sparkling fantasy for Republicans in the same way that guaranteed health care is for those of us on the left -- came sooner than expected. That "marionette in a hurry" is raring to go.

Another question about timing for a political battle occurs to me:
What is the expected timetable for the crucial struggle on making the big Bush permanent?

Is there some expiration mechanism in the law, or is it entirely up to the Republican leadership when that debate and vote happens? (I realize that even with some kind of trigger in the law itself, the leadership can do a lot to affect the timing.)

Posted by: Nell Lancaster | Feb 12, 2005 5:39:45 PM

Sorry, that question was meant to be

What's the timetable for the crucial struggle on making the big Bush tax cuts permanent?

Posted by: Nell Lancaster | Feb 12, 2005 5:41:57 PM

For those uncomfortable with the equation of 'tax=bad' in the term privatization tax:

Is privatization penalty an improvement?

Posted by: Nell Lancaster | Feb 12, 2005 5:47:20 PM

Well, the only specific piece of legislation proposed so far, spells out how to manage the cash flow problem--which is a different thing than a 'cost'--of moving to private accounts, pretty clearly:


Posted by: Patrick R. Sullivan | Feb 12, 2005 6:38:55 PM

The Ryan plan is a real hoot.

It purports to fund a bigger diversion of SS revenue than the current Bush plan by holding down government spending, like we did during the Clinton years, and using the surplusses to pay off the transition debt.

Yea, right.

Posted by: Buckaroo | Feb 12, 2005 10:00:36 PM

The Republicans are going after Social Security because it is There- an example of a successful, collective public policy in which Americans help one another. Bush wants to collect Social Security's scalp. The motivation is entirely destructive, like that of the Vandals at the gates of Rome.

Posted by: Bob H | Feb 13, 2005 6:40:25 PM

As someone why studies rhetoric for a living, let me stress fundamentally how important it is to "frame" issues through particular word choices. There's no shortage of historical examples for this, but name's matter: civil war vs. war of northern aggression, the death tax vs. the estate tax, the child custody act vs. the more limiting of sexual rights act (it's actual function), and so on and so forth. Pretty much everyone interested in communication has recognized the importance of naming things (from Antiphon and Plato's Cratylus to Bourdieu's recent work on symbolic capital and Foucault's "discursive formations"), and in this media age especially, where the meme often matters more for public perception than the reality signified by that meme, those of us on the left would do well to spend even more time on it than we currently do. Especially for those of us "reality-based community" people, who tend to be a bit more wonkish in our demeanor than many; we need to sacrifice a little wonk and offer up something more like a wink.

That being said, framing isn't a cure-all, nor is it the only approach to understanding the rhetorical consequences of policy-making. Framing, like any perspectival arrangment, costs you something, in that it provides a filter through which you'll then view certain realities. Kenneth Burke referred to this phenomenon as the terministic screen, a way of reflecting a given reality that selects it from a range of different interpretations and then deflects the openness to the alternatives. The Rockridge Institute, for example, is doing good work conceptualizing distinctions and strategies that progressives might use against conservatives, but does so by superimposing a very uniform model of the family, one that borders on the psychoanalytical. It excludes the role of apocalyptic religious influence, the success of foreign rhetorical frames, and the importance of in-group/out-group cohesion patterns.

Instead of just "framing," we might think in terms of what the late Michael Calvin McGee called "ideographs," words that symbolically condense an array of information. To that extent, both birth tax and privitization tax are great ideographs, even if they operate in a frame that assumes that taxation is something to be derided. What might be also beneficial (and necessary) is beginning to talk out the question of taxes on a metalevel, either in terms of communal obligation (a harder sell), or in terms of intergenerational equity (an easier sell, since it can capture the language of inheritance. After all, if the shift from the language of estate tax to death tax shows anything it's that even Republicans recognize that some taxes are more equal than others. So it may just be a matter of figuring out a way to speak the language of taxes in a manner more amenable to progressive interests. And while I actually really like the idea of "penalty" as a term, it might also be beneficial to borrow from the language of civil/criminal asset forfeiture.

Posted by: kenrufo | Feb 14, 2005 10:35:48 AM