Here's a YouTube showing John McCain's shifting stands on whether he favors privatizing Social Security.
In 2004, McCain said: "Without privatization, I don't see how you can possibly, over time, make sure that young Americans are able to receive Social Security benefits."
"My friends, I do not and will not privatize Social Security. It is a government program, and it's necessary, but it's broken, and we got to tell the American people that we've got to fix it, and we've got to sit down together the way that Ronald Reagan and Tip O'Neill did back in 1983 and fix Social Security. But my friends, I will not privatize Social Security, and it's not true when I'm accused of that. But I would like for younger workers -- younger workers only -- to have an opportunity to take a few of their tax dollars -- a few of theirs -- and maybe put it into an account with their name on it."
As Matt Yglesias says:
"In short, he stridently denies that he wants to favor privatizing Social Security. He just favors policies that are the same as the policies that were called "privatizing Social Security" before the GOP found out that privatizing Social Security is unpopular."
But there's more wrong with what McCain said than this sort of inconsistency. [UPDATE: "This sort of inconsistency" being not just the inconsistency between his past and present positions -- people get to change their minds -- but between his claim that he does not favor privatization and his claim that he favors, well, what everyone normally calls privatization. END UPDATE]
Just to go over a few of the highlights of the Social Security debate from a few years ago:
(1) Social Security does face a shortfall over the next 75 years. However, predicting this sort of shortfall is like predicting the weather: the farther into the future you project things, the less certain your predictions.
One way to see this is to look at how previous predictions of Social Security solvency have done in the past. If you look at Table 1 here, you can see these predictions for the past twelve years. Guess what? Twelve years ago, the Social Security Trustees predicted that the Trust Fund would run out of money in 2029. This year, they predict it will run out of money in 2041. Moreover, its projected 75 year deficit, as a percentage of GDP, has shrunk by over 20%. And all this as a result of doing nothing!
The point of this is not to say that we should go on doing nothing. (Though, personally, I think we can afford to wait a decade or so.) It is to say that we should remember that this problem is not projected to hit us for another 33 years, and that before we completely freak out, we should think about the possibility that those predictions are wrong. We should also remember that the projected shortfall is quite manageable. (It's worth bearing in mind that a lot of the projections are over 75 years.) For instance, as Table 2 here makes clear, we could make up for it simply by letting the Bush tax cuts on the wealthiest 1% of Americans expire and dedicating the proceeds to the SS trust fund.
Second, and more importantly: in the YouTube above, both in 2004 and yesterday, McCain talks as though letting younger workers put some of their FICA taxes into private accounts would help fix the Social Security shortfall. This is not true. Private accounts would make the Social Security shortfall much worse.
Recall the way Social Security works. I pay Social Security taxes. My taxes are used to pay the benefits of today's retirees. When I retire, my benefits will be paid by the taxes of the generation behind me, and so on. Suppose that we start allowing people to put some of their FICA tax dollars into personal accounts. That means that I will be paying not for the generation of workers who are now retired, but for me.
I have drawn some silly pictures to illustrate the problem:
The present system:
Here younger workers, on the left, are paying older workers, on the right. In time, the younger workers will be paid in their turn by today's toddlers.
Here, the workers keep their own money, leaving Mr. Scream, who had paid the generation that came before him and been counting on being paid by younger workers in turn, with nothing. (Obviously, you can alter this picture in various ways. For instance, if people divert part, but not all, of their FICA taxes to private accounts, Mr. Scream can say: "Where's that part of my money?")
Now: McCain has promised that Mr. Scream will, in fact, get his money. That means one of three things. Either it will come from the Social Security Trust Fund, in which case it will make the Trust Fund's solvency problems worse; or else it will come from Our Tax Dollars, which doesn't sound very pleasant, or else it will come from the Fiscal Fairy, who makes our numbers add up by magic.
Without the Fiscal Fairy, however, it's not just that there is no way at all in which personal accounts help with the problem John McCain says they solve. They make that problem much, much worse. It's hard to say how much worse without knowing what the details of McCain's plan are. But the President's plan for private accounts would have added $4.6 trillion to our debt in its first 20 years of operation. That's more than the projected Social Security shortfall for the next 75 years (see Fig. II.D4.)
(Note: just yesterday, I noted that depending on how you resolve McCain's apparent confusion about the Alternative Minimum Tax, you might have to add half a trillion dollars over ten years to the projected costs of his tax plan. If he's serious about these private accounts, they could add trillions more. And that's a whole lot of money, money that he has no proposal at all to make up.)
I could, of course, go on about why private accounts are a bad idea in any case. They put retirement security at risk; their returns are less than you'd think; and the details of many plans get pretty gruesome once you delve into them. (Anyone remember clawbacks?)
But the main point of this post is about McCain's grasp of the issues. He says he doesn't support privatization, but he supports the policy that term normally refers to. He seems to think it's a solution to Social Security's long-term solvency problems, but it would make those problems much worse than they are now.
Moreover, McCain isn't just confused about the issues; he's confused about what his own policy is. As publius wrote a few days ago:
"Though he’s recently flip-flopped, McCain has supported Bush’s private accounts. He told the WSJ this March:
"As part of Social Security reform, I believe that private savings accounts are a part of it -- along the lines that President Bush proposed."
When the WSJ informed him that his website only favored private accounts as “supplements,” he told the WSJ that he would change the website. (He didn’t, perhaps because McCain wasn’t grasping the policy details at the time)."
His web page still says that "John McCain supports supplementing the current Social Security system with personal accounts". The word "supplementing" is key here: it normally means leaving the system as is, but letting people put money over and above their FICA taxes into some sort of sheltered retirement account. But, as I noted above, he said yesterday that he'd like to let younger workers "take a few of their tax dollars -- a few of theirs -- and maybe put it into an account with their name on it."
Those are two very different policies. The first leaves existing Social Security intact; the second guts its funding. The first is the one McCain's web site endorses; the second is the one he says he supports.
It's yet another serious confusion on a very important issue, and yet another reason to wonder: is McCain really up to the job of being President?