Thursday, March 17, 2005

Remembering Bob Byfield

Where are all of the Republicans? My grandfather, Bob Byfield, was a true Republican. He believed in small government, the power of private enterprise and balanced budgets. At one time an observer at the United Nations representing the New York Stock Exchange, he was an internationalist but wary of foreign entanglements. Prudence at home and humility abroad. Hmm, sounds like the platform of George W. Bush in 2000.

The Republican Party has lost its foothold in reality, to say nothing of its own roots. Fiscal prudence and individual liberties are no longer the hallmark of the party deeply entrenched in power these days. There is no problem that cannot be addressed through cutting taxes and laying the costs on our children.

Take Social Security. Please. I am a believer in the need for Social Security reform. George Bush has pointed to real problems in the system. It may not be a crisis yet, but once certainly is looming.

The problem is simple. People are living longer, while years in the workforce remain constant. Franklin Delano Roosevelt was brilliant. Faced with the problem of elderly people living in poverty, he created an income support system for retired workers at age 65 at a time when average male mortality was 59. It was not a pension system--which is to say that the benefits were not paid for from invested contributions--but rather it was a pay-as-you-go system. The tax rate was 1/2 of 1%, and only workers who paid into the system received benefits. Yes, when the system was created there were 15 workers paying in for every retired worker taking money out, but that was simply a function of the fact that only workers who had paid in to the system received benefits, so it took years for the system to mature. By the 1970s the system was still OK and the ratio of workers to retirees had falled to 3 to 1.

Today's problem is not simply the ratio of workers to retirees, but rather the ratio of live people to dead people. The system was brilliant when most people died before their eligibility started, and is problematic when average mortality is approaching 80 while the age of eligibility has stayed at 65. This problem is not going to go away. People are going to keep living longer, and even as the system has developed attributes of a pension system--with built up reserves set aside to pay future costs--attention must be paid to the fundamental economics of the system.

However, as is his wont, the President has proposed to solve the problem by cutting taxes. That is what the proposed reform is, simply stated. The proposal will take half (of so) of a person's social security taxes and put them in a private account. This is the same as a tax cut: first we (the gummint) took your money, now you get to keep it. The condition is that you must save it. So it is a tax cut with the funds deposited into your IRA instead of your checking account.

Now, having cut the tax revenues flowing into the social security system, the program will not have enough money to fund its ongoing payments to retirees. The resulting annual program deficits--referred to in polite company as “transition costs”--will be paid for through the issuance of bonds, thereby passing the unfunded current program costs on to our children.

Sound familiar? This is how we are funding the Federal Government. Our annual budgets are X dollars. Our annual revenues are Y dollars. X is bigger than Y, so we borrow money though issuing bonds to pay for the annual shortfall. Who pays back the bonds? That would be our children. Or better yet, somebody else's children.

Tax cutting Republicans have honed their talking points over the years. Those of the Jude Wanniski/Jack Kemp supply sider school argue that deficits are temporary, that tax cuts engender economic growth that will drive up governmental revenues, and ultimately fiscal balance will be achieved without the need for draconian cuts. Those of the David Stockman/Newt Gingrich starve-the-beast school argue that after cutting taxes, deficits will force budget cuts, and through cutting expenses balance will be achieved. The theory was there on both sides.

In either case, these were not the talking points of Bob Byfield. Bob, a Republican of the Old School, believed in balanced budgets first, theory second. But most of all, he believed in integrity. If you want to cut taxes, cut costs. If you want to spend, pay for it. Whatever you do, Bob would say, do not finance current consumption on the backs of your children. Or of mine. That is the greatest moral failing.

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