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Steven Pearlstein

Pulled Down By Our Own Bootstraps

By Steven Pearlstein
Wednesday, November 17, 2004; Page E01

When President Bush touts his tax cuts, health spending accounts and Social Security reform, he frames it in terms of giving you control over your own money and destiny, which resonates with the notions of individualism and self-reliance that Americans so admire.

But I suspect Americans would be a good deal less comfortable with the flip side of this approach, which is a determination to undo well-established mechanisms that spread some of life's risks, narrow the gap between rich and poor and promote the sense that we are all in the same boat.

_____Live Discussion_____
Transcript: Steven Pearlstein was online to discuss this column.
_____Past Columns_____
Private Financing Of D.C. Ballpark Just a Tax Shelter (The Washington Post, Nov 12, 2004)
Intervention Before Bankruptcy (The Washington Post, Nov 10, 2004)
A Future For Enterprising Black Students (The Washington Post, Nov 5, 2004)
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The American workplace, for example, was once one of the great leveling institutions in American society. Companies systematically underpaid their best employees while overpaying those whose performance was subpar or whose skills were in plentiful supply. Pay scales were set primarily on the basis of seniority and job title, with much attention paid to what one person was paid relative to everyone else at the firm. And this was true even in places where unions did not rigidly enforce it.

As lifetime employment disappeared, union power waned, outsourcing increased and companies faced more price competition, pay came to be based much more on the basis of performance, or on what a worker could get on the open market. Government data confirm the resulting increase in inequality in wealth and income. So do soaring salaries for chief executives, star quarterbacks and college presidents.

When these inconvenient facts are presented in the context of proposals that would make things even more unequal -- eliminating the inheritance tax or cutting top tax rates -- Bush administration officials can only dissemble. What they believe, but don't have the guts to say out loud, is that the only thing that matters is equality of opportunity, not outcomes, while any attempt to make incomes more equal will only result in less efficiency and slower economic growth.

Those same social and economic values lie behind the proposal to divert Social Security deductions to individual retirement accounts. The president defends his plan by saying it will generate higher investment returns, which is probably true. But it conveniently ignores the benefits of a collective system, which would be lost.

For example, because contributions to Social Security are largely proportionate to income but benefits are much less so, Social Security transfers money from the rich to the poor. Any system of private accounts is bound to be less progressive.

More important, the collective system essentially represents a subsidy from those who die early to those who live longer than average. Such transfers are an essential part of any insurance scheme -- what is fire insurance but a transfer of money from those who don't have fires to the unlucky few who do? But that aspect of Social Security would be lost if the money set aside by people who die early is passed on as untaxed inheritance rather than put back into Social Security to pay benefits to those who live into their 90s.

The same dynamic is at work in health insurance, which in any given year represents a transfer of money from those who are relatively healthy to those who aren't.

What Bush prefers is a system in which Americans essentially insure themselves for all but catastrophic illness, putting aside money every year that can be rolled over from a "healthy" year to an "unhealthy" one.

The benefit of such a system is that Americans might become as cost-conscious in buying medical care as they are with everything else, helping to hold down spiraling health costs. But the trade-off is that we would abandon the principle that those lucky enough to be healthy should help out those who are not. Rather the Bush-Cheney attitude toward the unhealthy can be summed up in three words: "Suck it up."

Are you aware of any extraordinary acts of corporate charity during the past year? If so, please send along details and a contact number to pearlsteins@washpost.com. In the subject line, type "Christmas column." Thanks.

Steven Pearlstein will host a web discussion at 11 a.m. today at www.washingtonpost.com.


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