Not surprisingly from Peter Ferrara of the National Review. Ferrara doesn’t like Bush’s idea for “progressive price indexing”. Full disclosure, I’ve never been too keen on this proposal either but I would never argue redistribution is per se inefficient. Yet that’s what Ferrara claims:
The folks selling this idea argue that the current wage-indexing system increases benefits for future retirees each year in real terms, above inflation, which is unworkable since all projections show that Social Security doesn’t have the financing to pay such benefits over the long run. But the problem with this reasoning is that taxes paid under the payroll tax rise with wages each year as well. If taxes grow faster than benefits, than the effective rate of return promised by the program would decline each and every year – into perpetuity. Under the current wage-indexed system, Social Security already offers workers low, well-below-market returns. For most workers currently in the system, the real rate of return promised by the program is 1 percent to 1.5 percent or less. For some it is zero, or even negative. But price indexing would drive more and more workers into this negative-return range, making the program harsh, oppressive, and senseless for many Americans.
So many contradictions, so little time. Of course, some lose from redistribution, while others gain. You can’t have it both ways. If the Pozen plan reduces aggregate benefits, it does not also increase insolvency. But this is not the dishonesty from Ferrara caught my eye. What caught my eye was his subtitle:
Personal accounts, not short-sighted price-indexing schemes, will answer the Social Security problem.
You see, the average return to stock portfolios is 7% according to Ferrara, which of course, is all risk-free. Funny thing – most individuals don’t believe this nonsense so they tend to put some of their retirement wealth into bonds not stocks. So if I move $100 in Federal bonds from my left pocket to my right pocket, the increase in my portfolio return is ZERO.