Bush's Own Goal

By PAUL KRUGMAN
New York Times, August 13, 2004
http://www.nytimes.com/2004/08/13/opinion/13krug.html


A new Bush campaign ad pushes the theme of an "ownership society," and
concludes with President Bush declaring, "I understand if you own
something, you have a vital stake in the future of America."

Call me naïve, but I thought all Americans have a vital stake in the
nation's future, regardless of how much property they own. (Should we go
back to the days when states, arguing that only men of sufficient
substance could be trusted, imposed property qualifications for voting?)
Even if Mr. Bush is talking only about the economic future, don't
workers have as much stake as property owners in the economy's success?

But there's a political imperative behind the "ownership society" theme:
the need to provide pseudopopulist cover to policies that are, in
reality, highly elitist.

The Bush tax cuts have, of course, heavily favored the very, very well
off. But they have also, more specifically, favored unearned income over
earned income - or, if you prefer, investment returns over wages. Last
year Daniel Altman pointed out in The New York Times that Mr. Bush's
proposals, if fully adopted, "could eliminate almost all taxes on
investment income and wealth for almost all Americans." Mr. Bush hasn't
yet gotten all he wants, but he has taken a large step toward a system
in which only labor income is taxed.

The political problem with a policy favoring investment returns over
wages is that a vast majority of Americans derive their income primarily
from wages, and that the bulk of investment income goes to a small
elite. How, then, can such a policy be sold? By promising that everyone
can join the elite.

Right now, the ownership of stocks and bonds is highly concentrated.
Conservatives like to point out that a majority of American families now
own stock, but that's a misleading statistic because most of those
"investors" have only a small stake in the market. The Congressional
Budget Office estimates that more than half of corporate profits
ultimately accrue to the wealthiest 1 percent of taxpayers, while only
about 8 percent go to the bottom 60 percent. If the "ownership society"
means anything, it means spreading investment income more widely - a
laudable goal, if achievable.

But does Mr. Bush have a way to get us there?

There's a section on his campaign blog about the ownership society, but
it's short on specifics. Much of the space is devoted to new types of
tax-sheltered savings accounts. People who have looked into plans for
such accounts know, however, that they would provide more tax shelters
for the wealthy, but would be irrelevant to most families, who already
have access to 401(k)'s. Their ability to invest more is limited not by
taxes but by the fact that they aren't earning enough to save more.

The one seemingly substantive proposal is a blast from the past: a
renewed call for the partial privatization of Social Security, which
would divert payroll taxes into personal accounts. Mr. Bush campaigned
on that issue in 2000, but he never acted on it. And there was a reason
the idea went nowhere: it didn't make sense.

Social Security is, basically, a system in which each generation pays
for the previous generation's retirement. If the payroll taxes of
younger workers are diverted into private accounts, there will be a
gaping financial hole: who will pay benefits to older Americans, who
have spent their working lives paying into the current system? Unless
you have a way to fill that multitrillion-dollar hole, privatization is
an empty slogan, not a real proposal.

In 2001, Mr. Bush's handpicked commission on Social Security was unable
to agree on a plan to create private accounts because there was no way
to make the arithmetic work. Undaunted, this year the Bush campaign once
again insists that privatization will lead to a "permanently
strengthened Social Security system, without changing benefits for those
now in or near retirement, and without raising payroll taxes on
workers." In other words, 2 - 1 = 4.

Four years ago, Mr. Bush got a free pass from the press on his Social
Security "plan," either because reporters didn't understand the
arithmetic, or because they assumed that after the election he would
come up with a plan that actually added up. Will the same thing happen
again? Let's hope not.

As Mr. Bush has said: "Fool me once, shame on - shame on you. Fool me -
can't get fooled again."