A mailer went out this week 500,000 retirees in swing states this week from the AFL-CIO warning that John McCain wants to “privatize” Social Security. Mysteriously absent will be any notice that organized labor and congressional Democrats held a hearing yesterday in San Francisco that could be a quiet step toward socializing your 401(k).
The hearing was pitched as a way to “ensure retirement security” in the face of financial crisis. But that’s not accurate. The event was part of a poorly disguised power-grab, exploiting panic over financial turmoil in the housing and credit markets.
All working Americans should be concerned about retirement proceedings under the watch of House Education and Labor Committee chairman Rep. George Miller, D-CA. According to recent reports, Miller and other Democrats are considering portions of a plan that would take away nearly $80 billion in tax incentives for 401(k) plans.
It’s possible the policy would force workers to pay an additional five percent of their paychecks into government-controlled accounts, from which they would earn only a three percent return. In other words, proponents of private Social Security accounts would see their grandest dreams, and worst nightmares, realized in one fell swoop.
Democratic leaders and their labor allies can kill two birds with one stone. First, they will effectively neuter private, defined-contribution plans, which have replaced union-controlled defined-benefit pension plans for millions of Americans (after all, why would workers lock money away if there were no tax incentive?). At the same time, they can force those resources into a bigger, bloated government bureaucracy.
While some may be surprised at the brazen attack on a pillar of retirement security, it is merely the natural extension of organized labor’s world vision, which says we are better off putting resources and decisions anywhere but in the domain of markets and individuals. It is simple socialism: Democrats hope to push more retirement resources under the purview of the government, and away from the people who actually created the wealth.
If Democrats indeed move ahead with the plan they are pondering, the bulk of a person’s nest egg could soon be scrambled in a government program earning less-than-market returns. Without this fresh injection of employees’ paychecks, Social Security solvency still remains in doubt and hardly seems a superior option over equity markets.
Meanwhile, if union officials have their way, more employees will be driven back to old-style defined-benefit pensions that have been crippling America’s employers and sometimes short-changing America’s employees.
Union pension funds covering private sector employees already controlled more than $800 billion in retirement assets as of 2005, according to figures compiled by Heritage Foundation scholar James Sherk.
The results are not always impressive. UPS, for one, was forced this year to escape the Teamsters’ “Central States” plan at great cost before just so it wouldn’t be on the hook for obligations of other employers that may be failing.
This is high-stakes, high-cynicism politics at its worst. Not only are politicians exploiting fears driven by a once-in-a-lifetime market meltdown, they are repeating the very same thinking that led to the current housing crisis. As Ronald Reagan said, “Government is not a solution to our problem, government is the problem.”
Yet, it is very likely that following yesterday’s San Francisco hearing, Democrats will push a “solution” that is about bigger government, bigger unions, and smaller economic growth. They may well succeed in enlarging the social safety net. But it will be just big enough to strangle our economy.
Bret Jacobson is founder and president of Maverick Strategies LLC, a research and communications firm serving business and free-market think tanks.
