The Ownership Society and Social Policy in the 2nd Bush Administration Presentation at the Tokyo Ame

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The Ownership Society and Social Policy in the
2nd Bush AdministrationPresentation at the
Tokyo American CenterTokyo, JapanJanuary 14,
2005

• Ray Boshara
• New America Foundation
• Washington, DC
• 202-986-2700
• boshara_at_newamerica.net

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What is the Ownership Society?

• An ownership society values responsibility,
  liberty, and property. Individuals are empowered
  by freeing them from dependence on government
  handouts and making them owners instead, in
  control of their own lives and destinies. In the
  ownership society, patients control their own
  health care, parents control their own children's
  education, and workers control their retirement
  savings. - CATO Institute
• "Ownership brings security and dignity and
  independence. In all these proposals, we seek to
  provide not just a government program, but a path
  a path to greater opportunity, more freedom and
  more control over your own life. - President
  Bush, August 2004

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Ownership Society Policies

• Structured through individual or personal
  savings accounts
• Main proposals would privatize Social Security
  (Social Security Choice) and reduce taxes on
  saving for retirement, health care, upgrading
  skills, and education
• Would also encourage more business ownership and
  homeownership

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Who Owns America?

• Quintile Income Wealth
• Bottom 40 10 1
• Bottom 60 23 4.5
• Top 20 56 83
• Income inequality slowing, wealth inequality
  rising
• Non-whites hold 10 of the wealth of whites
• 330 billion a year in tax breaks to support
  wealth accumulation, but only helps upper-half of
  population

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Social Security

• First and foremost, the Ownership Society means
  privatizing Social Security
• Future retirees would be permitted to invest a
  portion of the 6.2 of taxes they now pay (on
  wages up to 87,900 per year) into a
  privately-owned account
• Specifics of Bush plan not yet known, but
  transition cost estimated at 100 billion per
  year
• Nearly 40 of the income of Americans aged 65 and
  older comes from Social Security, more than from
  any other single source
• Will be debated in Congress in 2005. Is there
  really a crisis? Can we achieve the goals of
  privatization without privatizing? Will there be
  a benefits floor if investments dont perform?

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Employer-provided Pensions

• Huge shift toward defined contribution
  pensions one-third in 1975 to over 80 in 1998
• 77 of workers earning less than 40,000 dont
  participate in an employer pension or have an
  IRA. The bottom 60 of those who do own less
  than 14 of the retirement assets
• Failure of Pension Benefit Guaranty Corporation
  (a federal agency), which is designed to protect
  the pensions of 44 million employees PBGC now
  has a 23 billion deficit
• Bush Proposal Employer Retirement Savings
  Accounts (ERSAs) combines existing
  tax-benefited, employer-based accounts (e.g.,
  401(k)s, 403(b)s) into one account contributions
  capped at 12,000 per year
• Will ERSAs adequately address the low levels of
  participation and assets among lower-income
  workers?

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Private Retirement and Lifetime Savings

• Presently, 93 of tax benefits for retirement
  savings accrue to households earning more than
  50,000 per year
• Bush Administration has proposed two new savings
  products
• Retirement Savings Accounts (RSAs) tax-free
  savings up to 5,000 per year for retirement
• Lifetime Savings Accounts (LSAs) tax-free
  savings up to 5,000 per year for any purpose at
  any time
• Over the long-term, costs would be 30-50
  billion a year
• Proposals considered in 2006 as part of tax
  reform and simplification
• Current system is upside down. Do these
  proposals address the key challenges in the U.S.
  private retirement system?

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Health Care

• 45 million uninsured Americans
• Health care costs are rising
• In 2004, health care premiums went up 11.2
• Total health care expenditures went up 9.3 in
  2002
• Health care expenditures were 14.2 of GDP in
  2002
• Rapidly rising health care costs, combined with
  an aging population, are by far the largest
  fiscal challenges in the U.S. over the long term
• U.S. health-care system is highly inefficient
• Total health expenditures per capita were 4,887
  in 2001, up 78 since 1990, and more than twice
  the per capita spending in Japan (2,331)

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Health Savings Accounts (HSAs)

• Current law
• Individuals who enroll in high-deductible health
  insurance plans, and not covered by other private
  or public insurance plans, may establish
  tax-favored Health Savings Accounts (HSAs)
• Contributions to HSAs (capped at 5,150 per year
  for a family) are tax-deductible, earnings are
  tax-free, and withdrawals not taxed if used to
  pay out-of-pocket medical expenses. (HSAs are
  tax-favored on both ends, which is
  unprecedented.)
• Bush proposal
• President would expand HSAs by allowing HSA
  participants to claim a tax deduction for the
  premium costs of high-deductible health insurance
  policies if they purchase such policies in the
  individual health insurance market. President
  also proposes refundable tax credits to help the
  poor save in HSAs
• Costs of HSAs, if expanded, would be 41 billion
  over 10 years
• Jury still out of the effect and effectiveness of
  HSAs
• Will they address the core challenges in the U.S.
  health care system?

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Poverty and Inequality

• Bush has no large, coherent anti-poverty agenda,
  and doesnt see inequality as a problem
• Many Americas (incorrectly) thought the poverty
  problem was solved when welfare was reformed in
  1996
• President sees ownership society and
  faith-based efforts as the solutions, but these
  are high-rhetoric and low-budget
• Most advocates see great reductions in
  anti-poverty programs, and believe starve the
  beast budget strategies are designed precisely
  to restrain governments ability to offer
  programs to the poor
• Most ownership society proposals based on private
  savings accounts are also seen as deliberate
  threats to New Deal social insurance programs
  especially Social Security, health care, and
  unemployment insurance

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Pros - Ownership Society - Cons

• Expanding ownership is exactly the right policy
  idea
• Structuring more policies through private,
  portable, flexible accounts works well for the
  21st century global economy
• Returns to capital are greater than returns to
  labor
• Choice and responsibility are the new, broadly
  accepted quid pro quo of the new social contract
• Politically astute plays into aspirations

• Excludes millions who lack bank accounts, tax
  liabilities, and savings
• Poorly targeted subsidies encourages asset
  shifting, not new savings
• Only 5 make maximum contributions to IRAs and
  401(k)s, so why raise limits?
• Undermines social insurance some risks should
  be pooled
• Fiscally irresponsible accounts not private
  and thus distorts political choices

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Ownership Society The Verdict?

• Right idea, wrong set of policies large
  credibility gap between rhetoric and proposals
• Ownership society proposals are good for some
  policy challenges, but not all must determine
  where account-based, savings-based, and tax-based
  accounts make sense, and where programs make
  sense
• In fact, ownership society policies will make
  some key problems the exploding deficit and
  wealth inequality much worse, and will
  undermine traditional social insurance or safety
  net programs
• However, given growing and enduring Republican
  domination in the U.S. in Washington and around
  the country ownership society proposals,
  Bush-style, are likely to move forward, for
  better or worse

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Japan vs. U.S.

• Lower fertility rate (1.3 vs. 2.0)
• Older population (36.5 vs. 20 over 65 by 2050),
  but higher rate of labor force participation
  among the elderly
• Higher rates of savings (6.4 vs. 2.1 personal
  savings as a percent of disposable income, 2003)
• Lower consumer demand
• Less income inequality (31.5 vs. 34.5 Gini
  coefficient)
• Much more efficient health care system (2,131
  vs. 4,887 per capita in 2001)

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Ownership Society Lessons?

• For Japan
• Boost fertility by broadening the ownership of
  assets similar to the post World War II GI
  Bill, which made housing and education more
  affordable and, thus, spawned the baby boom and
  ignited consumer demand
• Relax immigration laws?
• Would individualized social policies
  undermine Japans commendable village or
  communal mentality?

• From Japan
• How to provide health care more affordably
  all domestic policy threatened if we dont
• The importance of raising the retirement age,
  and encouraging work in retirement
• High rates of savings cannot solve many
  problems government and employers still play a
  crucial role in providing life-long economic
  security

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Resources

• New America Foundation
• www.NewAmerica.net
• www.AssetBuilding.org
• Cato Institute
• www.cato.org
• Brookings Institution
• www.brookings.edu