Letter to the President's Commission to Strengthen Social Security on Public Testimony
President's Commission to Strengthen Social Security
734 Jackson Place, NW,
Washington, DC, 20503
Dear Commissioners,
I have previously contributed my thoughts on the work of the commission, which I will again include as an attachment. Although I was unable to attend your hearings of October 18, 2001, please allow me to comment on the testimony of the panelists who did testify.
Hans Reimer, Dr. Alicia Munnel and Vincent Sombrotto all support making the current system solvent prior to any other reforms, and to having additional accounts be in addition to the current program rather than a subtraction from it. A common theme recommendation is to increase the amount of income subject to the payroll tax, which currently is only 86 percent of possible income rather than the 90% figure established in 1983. While this measure is outside of the scope of options allowed by the Executive Order establishing your Commission, I agree that it is a strategy to consider.
Such a reform is not far removed from the bolstering of current benefits with general fund revenues, as Michael Tanner advocates, or using general fund revenues to fund a floor in contributions, which is advocated by Dr. John Goodman, Mr. Tanner and Meredith Bagby, or using general fund revenues to bolster contributions to private accounts, as advocated by Maya MacGuineas, Dr. Michael Sherraden and Dr. Sylvester Schieber. In all of these scenarios, wealthier income earners - who are the major contributors to the general fund, make up the difference between what lower income earners can contribute and what they require. However, the least complicated method seems to be simply raising or eliminating the earnings cap on contributions. The further benefit of raising the cap echoes President Roosevelt's concern that using general fund revenues would give the program the flavor of the "welfare dole ."
On the subject of private accounts, Mr. Sombrotto, Mr. Reimer, and Dr. Munnell object to the risk of investment in private equity accounts, though these three and Dr. Sherraden believe in a supplemental private account over and above the current system. Mr. Tanner, Dr. Goodman, Ms. MacGuneas, Amy Holmes, Dr. Scheiber and Ms. Bagby fear government investment more and investment in private markets by private fund managers seemingly not at all.
I refer the Commission to my proposal to allow investment of funds in the voting stock of the employer. While this increases risk, it also increases responsibility. The flaw in all of the asset accumulation proposals is that they reinforce the separation of ownership and control, vesting voting power in pension fund managers in what can be called "trust fund socialism." In this atmosphere, plant closing and outsourcing decisions are merely investment decisions. When employees control some or all of the voting stock of the firm, management will take these decisions more seriously. While less diversification seems like the riskier course, the fact that this risk is matched with the ultimate responsibility of controlling the workplace and assuring the company is profitable through individual and collective effort more than makes up for the risk.
On the issue of administrative costs, Mr. Sombrotto cites the danger of high administrative costs while Ms. MacGuineas would make them more bearable by subsidizing account accumulation. Mr. Tanner discounts them almost totally, though his operation is funded by investment houses so his comments in this area are suspect. Mr. Goodman's proposal to have the government manage administration or the employer do so with a cost limit on what can be charged to plan income is most promising. I refer the Commission to my proposal to have the employer pay the entire burden of administrative costs, exclusive of plan income, as the ideal to which it should strive.
As I stated in my original correspondence, the most pressing issue before the commission is to maintain or increase redistributional equity. Mr. Tanner's statement increases the percentage of assets the poor can invest but does not increase the amount of funds available for investment, so his plan is an abject failure in the area of equity, although in the past he has stated that some form of dole for the under invested could be paid. As previously mentioned, Ms. MacGuineas and Ms. Bagsby both have some mechanism to have the general fund subsidize either asset accumulation or final payment, while Dr. Schieber would maintain a pension floor. Mr. Reimer, Dr. Sherraden, Dr. Munnell and Mr. Sombrotto would keep the current system in tact and add to it. Dr. Steurele mandates that something be done to increase distributional equity, but offers no solutions.
I refer the Commission to my own proposal, which increases redistribution by changing how funds are accounted for by the system - thus making fund accumulation more closely reflect benefit payment. It does this by simply crediting the employer contribution differently. Instead of crediting a matching contribution based on the employee contribution, credit each employee with the average contribution in either the firm or society. To further increase equity, one could even have the government fund 2.5% of average income to each participating worker as part of Dr. Schieber's plan. Funding employer contributions equally and then using a portion of those contributions to fund the purchase of employer voting stock provides a painless way to eventually increase the amount of savings in the system, either by raising or removing the income cap or by increasing the amount of the employer contribution. This increase would remain in the firm and increase its capitalization and would involve minimal administrative costs.
As in any plan, the transition would involve some increased cost, although my plan offers the least trauma. If employers and employees opt voluntarily for my approach, the employer could accelerate the transition by prepaying employee contributions to the system and by fully capitalizing all current retirees and former employees and survivors with stock and then forever opt out of the federal system, acceleration Mr. Tanner would welcome, though he assures me he disagrees with employee ownership as a means of privatization. The federal government could facilitate this transition by matching these purchases at least to the extent that assets are held by the social security trust fund, if not by a more aggressive match funded by general revenues, which would compensate the fund for the income lost to social security due to the existence of the income cap.
I thank the Commission for its attention to my comments. You may contact me if you have any questions.
Sincerely yours,
Michael Bindner
734 Jackson Place, NW,
Washington, DC, 20503
Dear Commissioners,
I have previously contributed my thoughts on the work of the commission, which I will again include as an attachment. Although I was unable to attend your hearings of October 18, 2001, please allow me to comment on the testimony of the panelists who did testify.
Hans Reimer, Dr. Alicia Munnel and Vincent Sombrotto all support making the current system solvent prior to any other reforms, and to having additional accounts be in addition to the current program rather than a subtraction from it. A common theme recommendation is to increase the amount of income subject to the payroll tax, which currently is only 86 percent of possible income rather than the 90% figure established in 1983. While this measure is outside of the scope of options allowed by the Executive Order establishing your Commission, I agree that it is a strategy to consider.
Such a reform is not far removed from the bolstering of current benefits with general fund revenues, as Michael Tanner advocates, or using general fund revenues to fund a floor in contributions, which is advocated by Dr. John Goodman, Mr. Tanner and Meredith Bagby, or using general fund revenues to bolster contributions to private accounts, as advocated by Maya MacGuineas, Dr. Michael Sherraden and Dr. Sylvester Schieber. In all of these scenarios, wealthier income earners - who are the major contributors to the general fund, make up the difference between what lower income earners can contribute and what they require. However, the least complicated method seems to be simply raising or eliminating the earnings cap on contributions. The further benefit of raising the cap echoes President Roosevelt's concern that using general fund revenues would give the program the flavor of the "welfare dole ."
On the subject of private accounts, Mr. Sombrotto, Mr. Reimer, and Dr. Munnell object to the risk of investment in private equity accounts, though these three and Dr. Sherraden believe in a supplemental private account over and above the current system. Mr. Tanner, Dr. Goodman, Ms. MacGuneas, Amy Holmes, Dr. Scheiber and Ms. Bagby fear government investment more and investment in private markets by private fund managers seemingly not at all.
I refer the Commission to my proposal to allow investment of funds in the voting stock of the employer. While this increases risk, it also increases responsibility. The flaw in all of the asset accumulation proposals is that they reinforce the separation of ownership and control, vesting voting power in pension fund managers in what can be called "trust fund socialism." In this atmosphere, plant closing and outsourcing decisions are merely investment decisions. When employees control some or all of the voting stock of the firm, management will take these decisions more seriously. While less diversification seems like the riskier course, the fact that this risk is matched with the ultimate responsibility of controlling the workplace and assuring the company is profitable through individual and collective effort more than makes up for the risk.
On the issue of administrative costs, Mr. Sombrotto cites the danger of high administrative costs while Ms. MacGuineas would make them more bearable by subsidizing account accumulation. Mr. Tanner discounts them almost totally, though his operation is funded by investment houses so his comments in this area are suspect. Mr. Goodman's proposal to have the government manage administration or the employer do so with a cost limit on what can be charged to plan income is most promising. I refer the Commission to my proposal to have the employer pay the entire burden of administrative costs, exclusive of plan income, as the ideal to which it should strive.
As I stated in my original correspondence, the most pressing issue before the commission is to maintain or increase redistributional equity. Mr. Tanner's statement increases the percentage of assets the poor can invest but does not increase the amount of funds available for investment, so his plan is an abject failure in the area of equity, although in the past he has stated that some form of dole for the under invested could be paid. As previously mentioned, Ms. MacGuineas and Ms. Bagsby both have some mechanism to have the general fund subsidize either asset accumulation or final payment, while Dr. Schieber would maintain a pension floor. Mr. Reimer, Dr. Sherraden, Dr. Munnell and Mr. Sombrotto would keep the current system in tact and add to it. Dr. Steurele mandates that something be done to increase distributional equity, but offers no solutions.
I refer the Commission to my own proposal, which increases redistribution by changing how funds are accounted for by the system - thus making fund accumulation more closely reflect benefit payment. It does this by simply crediting the employer contribution differently. Instead of crediting a matching contribution based on the employee contribution, credit each employee with the average contribution in either the firm or society. To further increase equity, one could even have the government fund 2.5% of average income to each participating worker as part of Dr. Schieber's plan. Funding employer contributions equally and then using a portion of those contributions to fund the purchase of employer voting stock provides a painless way to eventually increase the amount of savings in the system, either by raising or removing the income cap or by increasing the amount of the employer contribution. This increase would remain in the firm and increase its capitalization and would involve minimal administrative costs.
As in any plan, the transition would involve some increased cost, although my plan offers the least trauma. If employers and employees opt voluntarily for my approach, the employer could accelerate the transition by prepaying employee contributions to the system and by fully capitalizing all current retirees and former employees and survivors with stock and then forever opt out of the federal system, acceleration Mr. Tanner would welcome, though he assures me he disagrees with employee ownership as a means of privatization. The federal government could facilitate this transition by matching these purchases at least to the extent that assets are held by the social security trust fund, if not by a more aggressive match funded by general revenues, which would compensate the fund for the income lost to social security due to the existence of the income cap.
I thank the Commission for its attention to my comments. You may contact me if you have any questions.
Sincerely yours,
Michael Bindner
posted by Michael Bindner at 8:55 PM
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