Gore's Investor Bid: Bush should top him

National Review, July 17, 2000 by Richard Nadler

The hour of the new investor class has come. We have the strongest evidence possible: The Democratic presi dential nominee has been forced to support pro-investor policies. We should be pleased at the pace of progress-but also a little worried, because Al Gore's conversion has occurred before the Republicans, the natural allies of the new investor, have fully awoken to their political opportunities.

When George W. Bush announced his proposal on Social Security, Gore's attack-to the surprise of many-backfired. Too many people had experience managing their own investments to be frightened of "stock- market roulette." Polls showed that the two parties, for the first time ever, were judged even on the question of who would best protect Social Security.

So the vice president put in his own bid for investor allegiance, coming out for a program dubbed Retirement Savings Plus. His plan would give workers individual accounts just like a 401(k)-with the difference that their contributions would be matched by the federal government instead of employers. Account-holders could withdraw money for retirement, emergency medical expenses, first-time homeownership, and college.

These accounts would be "progressive." When fully implemented, workers earning under $30,000 could contribute as much as $500 per year, matched 3-to-1 by a refundable tax credit. Middle-income workers would receive a 1-to-1 match. Workers earning between $60,000 and $100,000 would receive a dollar tax credit for every three dollars saved. In all cases, the accounts would be capped at $2,000 a year. (By Democratic logic, those most heavily taxed already-earners in the $100,000-plus bracket-would be ineligible for tax relief.)

The first casualty of Gore's proposal was his own argument against Bush's Social Security plan. The Gore campaign explained that couples could easily use Gore's program to build up a $400,000 nest egg. That would yield a life annuity of about $50,000 on retirement. For a couple making $50,000 a year, that's a return 50 percent better than Social Security, at much less expense than payroll taxes. In effect, each dollar this couple invested in Gore's account would generate twice the benefits of a dollar put into Social Security.

So Gore's numbers belie his defense of the Social Security status quo-a point conservatives were quick to make when Gore unveiled his plan. But conservatives have been slower to appreciate the virtues of the Gore plan.

They have not yet recognized that this scheme builds on ideas they themselves have advocated for years. Repub li cans have long countered liberal spending programs with personal- investment options: educational savings accounts, IRAs, and the like. In each case, a tax cut or tax credit generates personally owned, privately managed financial assets. The drawback to these options is that they are targeted, with account-holders able to use their assets for limited purposes or times.

The solution to this problem is a universal IRA. If workers could save for retirement, health care, education, homeownership, unemployment protection, and business start-ups in the same account, the targeted tax cuts would become more and more like general tax cuts. At any given time, most families would be engaging in at least one of these purposes.

NR's Ramesh Ponnuru and I have advocated an incrementalist strategy toward achieving universal IRAs. Tar geted accounts were the thin end of the wedge. Over time, programs such as educational savings accounts would grow just the way spending programs do-but to opposite effect. Instead of higher taxes and more government control, they would produce a demand for higher tax cuts and more individual control. Politicians' efforts to broaden the constituency for such programs would lead in time to universal savings accounts.

Now Gore, driven by the new investor class, has compressed this development from a decade to a day. His new plan is, for all its flaws, very much like a universal IRA. Funded by tax cuts, the program is deregulatory in character. The privately owned, personally managed accounts would generate retirement benefits without union mediation, medical resources without insurance, college tuition without federal loans.

This approach was not Al Gore's first choice. For a Democrat, it is a terrifying choice. By allocating $200 billion from the federal budget surplus to investment tax cuts, scored largely against income-tax liabilities, Gore insults every liberal- activist group in his party. The surplus is money available to liberal constituencies at no political cost. Yet the Democratic presidential nominee proposes to spend this money not for 100,000 new members of the teachers' union, but on individual tax credits. He thereby informs his party's teachers, trade unionists, social workers, trial attorneys, and feminists that his best marginal use of "new" money, and lots of it, is to remove it from their hands.

So Gore is on dangerous terrain, just as Republicans are when they endorse social programs. He can gain new supporters, but he risks alienating core constituencies. He has no choice but to take that risk, however, because his base cannot elect him. The polls have forced him to trawl for votes among the swelling investor class.