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Fries with Fries

Posted By Russ Roberts On January 25, 2005 @ 5:02 pm In Social Security | Comments Disabled

When Jay Leno was just a stand-up comic, I remember a routine of his where he walks up to the counter at McDonald’s and orders fries.  The server mindlessly responds, "Would you like fries with that?"  "Hmm," Leno wonders.  "Fries with fries.  What an interesting concept."

We have now reached the fries with fries concept with social security.  Senator Dianne Feinstein is now in favor of private accounts as long as they’re added to social security.  The San Francisco Chronicle reports [1]:

California Sen. Dianne Feinstein said Monday she would consider
adding private investment accounts on top of the current Social Security
system  –  a position that is rapidly emerging as a potential Democratic
alternative to President Bush’s controversial plan to change the giant
retirement program.

So what does that mean exactly?  The status quo?  Possibly.  As far as I know, workers even today are actually allowed to invest their own funds on top of whatever they expect from social security.

"I don’t see a private plan that doesn’t have real drawbacks," Feinstein
said Monday, speaking to California reporters. The senator cited reports that
show of the 4 million Californians who now receive Social Security, about one-
fifth have no other source of income and about half would be in poverty
without Social Security.

"The only thing I would consider  –  and it needs to be thought out  – 
is private accounts in addition to Social Security," Feinstein said. "Because
Social Security was never meant to be a full pension. It was meant to help.   
And I think anything government can do to encourage prudent investment by
individuals, say within an indexed, limited fund of companies, maybe with some
tax offsets to be able to do it, as an addition to Social Security, would be a
good thing."

Feinstein’s idea points to a middle ground between Bush’s plan and
leaving the system as it stands now  –  so-called add-on accounts, where
workers would contribute money for their own accounts in addition to their
payroll taxes, rather than using part of their payroll taxes.

Isn’t this what most of us call "investing?"

Senator Feinstein does mention the government "encouraging" these accounts with tax policy.  That’s a good idea.  Somehow I doubt she’s in favor of cutting capital gains taxes.  So we have a mystery.  What exactly are these "add-on accounts?"  An increase in government mandated saving?  A government-monitored private investment vehicle?  There is a reference in the article to a plan of President Clinton’s where the government would match investments of low and middle income workers.  Some variation on that plan may end up being the political compromise that allows Bush to get something close to what he wants.

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