Will Social Security Be To Bush What Health Care Reform Was To Clinton?
Mr. Bush and his associates have made it clear that he plans to use his political capital (as he envisions it) on his two main domestic priorities this year: Social Security privatization and tax “reform”, in that order. Even though the Social Security system is solvent for the next four decades, Bush seemingly wants to stampede a political dialogue this year before he becomes a lame duck and push through what conservatives have only dreamed about doing for decades, which is undermining Social Security as a middle class entitlement. As for taxes, Bush has said that he wants to study tax law changes for at least several months, but wants to move ahead with Social Security changes now, based on the outlines of the commission report chaired by the late Senator Daniel Patrick Moynihan in 2001, which was stacked with corporate Bush buddies intent on undermining the system and calling it reform. Moynihan himself disliked how he felt used by Bush, so it is especially galling now for Bush to be using Moynihan in death as his cover once again for claiming that he wants a bipartisan solution.
Against this backdrop, it is important to remember that the “crisis” in Social Security that Bush and Alan Greenspan tout is largely of the GOP’s own making. Yes, the system can use some tweaking and improvements just like Ronald Reagan oversaw in the 80’s, among other things in how it calculates benefit adjustments, by raising the earnings levels subject to taxation, by bringing currently-exempt government employees under taxation, and by raising the retirement age and tax levels. But the long term drain on the economy from Social Security’s shortfalls is smaller than the damage done to our economy by the fiscal irresponsibility of Bush’s tax cuts.
Bush feels erroneously that he has a mandate to push ahead with Social Security and tax “reform” plans, when in fact he does not, as the recent CBS News/NYT poll showed just last week. Bush also feels erroneously that he can get a Social Security privatization and a tax shift away from wealth onto the middle class by simply changing his salesmen, as if having Phil “Enron” Gramm return as a Treasury Secretary or some corporate lightweight would sway moderates in both parties. He is seriously mistaken on that as well, as Bush seems to overlook the fact that he has more problems with his own party than he knows.
There is a good argument to be made for allowing workers if interested to self-direct a portion of their current withholdings as they see fit, so that ownership and responsibility can be fostered rather than entitlement. As in many things however, the devil is in the details and the rationale for changing the system. The two biggest arguments in favor of privatizing Social Security have been that the program as currently constituted provides a low rate of return and yet is so under funded that it will not be around for younger workers to count on when they retire in thirty to forty years. Yet in touting the benefits of a partial privatization just weeks ago, the Bush Administration now says that under the Administration’s initial idea rather than let beneficiaries direct their self-controlled share to investments of their choice, up to 2% of the employee share could be redirected to investment vehicles such as index funds and other lower risk choices, which has undercut somewhat the rate of return argument. Furthermore, Wall Street brokerage houses who have bet heavily on Bush’s reelection on the premise of millions in commissions from selling higher risk investment vehicles to self-directing Social Security beneficiaries now feel they’ll make little money on partial privatization in the early years. Second, as for the other argument in favor of privatization, namely that the program if left alone will be severely under funded, aside from the truth that the under funding isn’t a problem for decades, commenters have noted that a good deal of the under funding problem can be mitigated without significant privatization at all by simply raising the retirement age once again, raising the income ceiling for Social Security taxation, by bringing public employees into taxation, and by changing the cost of living indexing to a more moderate methodology. In other words, a large part of the argument for allowing beneficiaries to self-direct, to seek higher returns and to relieve the government of some of its unfunded long term obligation can be addressed by solutions that fall far short of significant privatization.
Furthermore, one of the biggest impediments to any privatization of Social Security are the transition costs of continuing to fund the benefits of current and near-term retirees at a time when the younger generation is allowed to pull a share of its contributions out of the system to fund its own investment choices. This funding gap for transition costs has been estimated at between one and two trillion dollars or more over the next decade, and until recently Democrats assumed that with Bush blowing huge deficits into the budget for the next two decades through his tax cuts, there would be no money available to fund privatization. Just talking about the multi-trillion dollar transition costs of privatization may be damaging to Bush, as it becomes clear how costly any such “reform” will be. But in just the latest GOP hypocrisy, the White House and GOP leadership have decided to borrow the trillions necessary for privatization on top of the borrowing that is already necessary to fund Bush’s deficits. How will they do it? By moving the Social Security borrowing off budget and acting like it isn’t tied to federal borrowing. This is coming from the same GOP that blasted Clinton in the early 1990’s for not cutting the budget further because the GOP felt that the deficits were actually worse than they were due to the Social Security trust fund surpluses. Now it is the GOP that wants to ignore the real annual deficits caused by Bush’s recklessness and actually add to it by saddling future generations with even more debt to pay for privatization, and to cut benefits and raise taxes to do it as well.
Some commentators feel that Bush is in a commanding position to do these things because of his margins in the House and Senate, and because of the election. Yet what these columnists and reporters miss is that the recent CBS News/New York Times poll shows that Bush has no mandate for Social Security or tax reform schemes, and in fact already has a trust deficit on these issues with the same voters who just returned him to office. Second, as David Brooks himself noted over the weekend, there is a sizeable contingent of the House GOP membership that doesn’t want to tackle Social Security privatization, and who are against any further deficit spending. Furthermore, I fail to see how Bush can sell the need to push the country into a trillion dollars of more debt just to allow younger workers to make their own investments in low-risk vehicles when a good deal of the government’s long term under funding can be addressed without such borrowing.
Democrats have great opportunities to not only play the fiscal discipline card with voters but to also play a generational game to Bush’s disadvantage over the coming months. While Bush and the GOP push Social Security privatization as “reform” in the coming months, Democrats can counter that there is no money for any subsequent tax reform schemes and any draconian effort to give younger workers their choices as well without saddling all taxpayers with incredible debts to pay for such recklessness. Bush may find himself in the same bind that Clinton did in 1993, when Clinton chose wrongly to pursue health care reform instead of locking in a victory on welfare reform first and then using his capital on health care reform. Bush finds himself thinking that he has more political capital than he actually has, as the CBS News/NYT poll shows. There is no empirical case to be made for a Social Security privatization that Bush’s own fiscal policies and the GOP’s too clever-by-half deceptions have rendered too costly, when voters already know from Bush’s own words that he will come back later to tackle taxes and make things even worse than they are now for the middle class.
When Democrats show that less ambitious tweaks in the current Social Security program can generate substantial savings and affordable changes without massive and destabilizing borrowing, Bush will have a hard time arguing for why younger workers are entitled to their own investments when their returns will not be much higher than they are now and it will cost at least a trillion dollars on top of Bush’s deficits to allow them to do so. Arguing that trillions dollars of borrowing for an ownership society on top of existing deficits when basic and current needs like infrastructure, homeland security, education, veterans’ benefits, and environmental protection go unmet will be too tough a sell for a man who already overstates his amount of political capital.