Perhaps it was President Bush’s confidence, political hubris or a sincere intent to make his historical mark after winning a hard-fought second-term election. He stood there, blue suit and red tie, at his February State of the Union address and told the firmly Republican Congress that he was going to take on the so-called third rail of politics: Social Security.
Bush mentioned the pension program by name 18 times that night, arguing that the best way to ensure solvency was to partially privatize one of the most successful public-policy programs of the modern American era. It was to be his National Park Service, his New Deal, the domestic hallmark of his presidency.
Historians were to write: President Bush took on terrorism and saved Social Security.
But six months later, after more than 30 related speeches — he’s made more speeches about Social Security than the war in Iraq since his State of the Union — after traveling to dozens of states to bully from the White House pulpit, the president’s efforts have come to nil.
And with the likely resignation of the United States’ ailing 80-year-old chief justice, William Rehnquist — and the possibility that other, more liberal justices will also step down — the path is paved for a bitter judicial nomination battle in Congress. Such a battle, by most expectations, would surely smother the domestic debate on Social Security through the August recess, if not this entire session of Congress. In short: President Bush is racing against the clock.
In an effort to buy time last week, congressional Republicans put forward a watered-down version of Bush’s proposals. A House and Senate proposal would establish private accounts utilizing the Social Security surplus only, as opposed to Bush’s broader use of private accounts. But Democrats still did not bite. Social Security reform remains stymied. And Republicans are increasingly livid.
“We haven’t had one Democrat step forward on this,” a frustrated Sen. Charles E. Grassley said by phone from his farm in Iowa. As chairman of the Senate Finance Committee, Grassley is charged with forging a plan that can unite Republicans and woo a half dozen Senate Democrats. “Since everybody knows something needs to be done about it, the statesmanlike thing would be to step forward,” Grassley continued. “Since they haven’t done the statesmanlike thing, then we are heading towards trying to embarrass them into trying do something, because we’re doing it and they aren’t and they ought to feel guilty about that.”
Democrats don’t feel guilty. They flatly refuse to back any Social Security reform that includes privatizing the 70-year-old federal pension program.
“We are going to stand and fight to kill the privatizing approach,” said Rep. Earl Pomeroy, D-N.D., a leading House opponent to privatization. “Once that’s done, we have an agreement, maintaining the existing benefit structure. We decide how we fix the long-term solvency structure so that in 2041 we don’t run out of money.”
The reality of 2041 is possibly the only part of the Social Security debate not in dispute. It is then, according to government actuaries, that Social Security is expected to become insolvent.
To Republicans, Bush is attempting to deal with a problem today in order to avoid a crisis tomorrow. To Democrats, the president’s proposal worsens the problem, bringing tomorrow’s crisis to bear this decade.
As for the American people, they don’t see the same crisis as the president does, let alone believe the program should be fundamentally rolled back. A New York Times/CBS News poll this month found that four-fifths of those surveyed believed it was the government’s responsibility to provide “a decent standard of living for the elderly,” fully two-thirds questioned the president’s ability to make sound decisions on Social Security, and half said they were not confident in their ability to make good investment decisions in the stock market, as Bush’s Social Security plan entails.
It is this public skepticism that empowers Democratic opposition to Bush’s proposal and prevents GOP lawmakers from uniting behind one Social Security proposal. Of the Republican proposals, only the House and Senate bill led by Sen. Jim DeMint, R-S.C., has gained some Republican momentum. DeMint hopes to use the Social Security surplus, which is scheduled to run out in 2017, to dole out individual accounts as soon as 2006. To DeMint, his plan is a compromise for Democrats because it does not attempt to privatize the program beyond the surplus. For now, that is.
“I firmly believe that the first time Americans get a statement and it shows real money in it, they are going to get engaged and ask why the accounts aren’t bigger,” DeMint said in an interview. “They’re going to ask why they don’t have more choices of investment, and then they are going to see why this is so important to move on Social Security this way.”
DeMint dismisses criticism that his plan dilutes the surplus, providing cash to people now while not addressing the shortfall after 2017, when Social Security taxes will begin to bring in less money than the program pays out in benefits.
DeMint and his fellow sponsors argue that payroll taxes are going to bail out government spendthrifts. “Democrats do not want individual Americans to own and control their own Social Security,” DeMint said. “They want to own it, control it, and keep spending it.” Democrats argue Bush’s tax cuts equally deplete government coffers. This is the divide. The policy debate is no longer over solvency, but how to get there.
“The biggest challenge facing Social Security is solvency,” said Democratic Sen. Mark Pryor of Arkansas, in an interview. As a Democratic senator in a “red state,” Pryor is exactly the type of Democrat Bush is hoping to woo his way. Yet Pryor questions the very assumption of DeMint’s plan. “Do we really have a Social Security surplus when the money is obligated to first purchase government bonds or government debt, and then to extend the solvency life of Social Security?” he asked.
Republicans like DeMint are at least content that Democrats like Pryor are recognizing publicly that the Social Security fund will be exhausted after the baby boom generation retires. But that is as far as Democrats will go under the current congressional bills. “The superficial appeal of their latest proposal is basically, privatize Social Security and we’ll stop spending the money,” argued Pomeroy, who as a member of the Ways and Means Committee opposes the House version of DeMint’s bill. “Well, that’s a trade-off the American people don’t have to make,” he added. If privatization is taken off the table, Democrats say they will work with Republicans to address long-term solvency.
Another GOP proposal, from Sen. Robert Bennett of Utah, focuses solely on solvency and doesn’t deal with the controversial issue of private accounts. Bennett does not have the open support of the White House or congressional leadership, but both are welcoming him to test the legislative waters. Not yet a bill, Bennett’s proposal would call the Democrats on their legislative bluff, Republicans say. “The only thing I resent about [that argument],” Bennett said, “is that it implies that my sole purpose here is political. I may be old-fashioned, but my purpose here is to solve the problem. Every expert that’s looked at it agrees that it will. And it meets the one stated criterion that the Democrats have laid down when they say, we won’t vote for anything with personal accounts in it.”
Bennett’s plan proportionally reduces monthly benefits as the life expectancy for recipients grows. The reduction would keep the payouts from the Social Security coffers steady and ensure Americans continue to receive some Social Security benefits as they age. The second component includes progressive indexing, which Democrats have called a benefit cut.
Generally, because wages grow faster than inflation, payouts for wealthy retirees would be based on prices instead of wages. Benefits for low-income workers would continue to be calculated using wages. For those in the middle, the rate would combine the equations.
For now, two factors outside pure partisan opposition keep a Democrat from joining with Bennett. Primarily, Democrats refuse to take the plan seriously until the Republican leadership backs it. And they don’t believe the GOP will. Both sides see the other as bluffing.
“The entire history of the Bush administration and Republican majority in Congress is to reward the affluent at the expense of everyone else,” Pomeroy said. “Now to suggest they are suddenly going to have a total change of heart on Social Security and keep everyone else secure, reduce the program for the affluent, in my opinion, it will be unlikely.”
Pomeroy’s problems with the proposal don’t stop with his belief that the Republican leadership won’t support it. He has a second issue. A long-standing Democratic principle is that Social Security succeeds because, unlike welfare, it benefits the broad American public.
“This is a program that has hung in for seven decades, and that’s not an accident,” Pomeroy said. “It’s because it is constructed in a way where we all have a stake in it. You reduce the stake of the most affluent in Social Security, I think you place the program in future jeopardy.” Are Democrats really defending lessening the financial burden on the rich? In this case, yes. Cuts for one group, Pomeroy insists, would be the beginning of the end of the program.
Republicans say this is a bit much. At some point, they say, painful decisions will have to be made. Yet Democrats refuse to believe that the pain has to be felt in the form of reduced benefits. Pomeroy suggests keeping the estate tax for those with more than $6 million in net worth. There are other options, the minority party argues.
Bennett recognizes that he stands alone. “The president has said very clearly he is not backing away from personal accounts,” Bennett said. “However, he has encouraged me to put forth an alternative proposal in an effort to keep the debate moving forward.”
But that is what Democrats are complaining about. If Bennett’s plan is only for debate, and not what the Republican leadership will support, then why take it seriously? “The president believes that voluntary personal accounts are an important part of any solution, but it doesn’t mean we won’t consider other plans that don’t include it,” said David Almacy, a White House spokesman. “It meets the Democrats’ main excuse,” Almacy added, referring to their stance against personal accounts.
DeMint applauds Bennett’s proposal. Calling it the “all pain” plan, DeMint and Bush stand by some variant of personal accounts. While Bennett agrees with Republicans on privatizing Social Security accounts, he’s resigned to leaving that option for a later session of Congress if Democrats will engage him on solvency solutions. So far, they will not.
To the White House, Bennett’s plan is at least a beginning. “It’s like saying what’s the best way to stay warm,” Almacy said of the president’s position. “We could use a sweater, we could use a jacket, but it’s better to use both.”
So Bennett waits. “Democrats got a political calculation and decision to make,” the Utah senator said. “Do they look better going into the 2006 election with nothing on the table?” Democrats have refused to put out an alternative plan until Republicans back a plan that takes private accounts off the table. “They have teed this up,” Pomeroy said. “It is their principal responsibility.”
Pryor agreed. “What I am looking for on this is presidential leadership,” the Arkansas senator said. “This is something that is very puzzling to me; if [Bush has] made it his No. 1 domestic priority, why doesn’t he come to the Congress with a plan?”
For now, Bennett acknowledges that without Republican leadership behind him, Democrats are not likely to consider proposing alternatives to his plan. Although Bennett believes his proposal to be a genuine olive branch, he recognizes that skeptical Democrats consider his bill a “bait and switch,” meant to lure them into the debate in conference committee, where the House and Senate bills would be reconciled.
The Democrats’ position is that the president and Republican leadership must vow to not force through privatization or any form of personal accounts when the upper and lower chambers reconcile the two bills in conference: an occasion few on either side of the aisle see as likely.
“The Democrats are hoping this is Bush’s version of Hillary-care, where President Clinton invested an enormous amount of capital into a very contentious, highly emotional issue, and ended up losing 52 seats in the House,” Bennett said. “The Republicans are saying this is Tom Daschle revisited. Tom Daschle did everything he could to frustrate Bush prior to the 2002 election when he was majority leader and ended up losing his majority. He took the position in the next two years that the one thing he had done wrong was not be tough enough on Bush and let’s stop everything in the Senate. And he was awarded with the loss of his own seat.”
DeMint, too, fears that “if we don’t pass something like this, I think 2006 could be pretty messy.” He added: “We’ll be out there arguing about what we might do, instead of what we’ve done.”
What DeMint would like to do is create personal accounts that amount initially to 2.2 percent of income in 2006 and gradually decrease to 0.22 percent by 2016. An individual making $50,000 annually would have $1,100 to put into an account in 2006; a decade later, that amount would decrease to $110, according to the Social Security Administration. After that point, the Social Security trust fund will become exhausted.
DeMint’s plan — there’s a similar bill in the House — does not deal with the fact that by 2017 the pension program will be spending more money than it takes in.
R. Kent Weaver, a political scientist at Georgetown University and a longtime policy analyst for the Brookings Institution, calls it a “terrible plan” that “doesn’t address the long-term solvency problem of Social Security.” While the point about solvency is not in dispute, DeMint argues that “what we’ve been trying to do is swallow the apple whole,” and his bill is only a beginning. What matters to DeMint is that this proposal “stops the raid” on the Social Security surplus. In other words, it’s a beginning.
“Republicans want to take the focus off long-term solvency because they control both houses of Congress and are setting the agenda, and needless to say, nobody wants to set the agenda when all the alternatives are unpleasant,” Weaver said. “Understandably, they want to focus on the individual-accounts issue, which is the part that sounds nice.”
DeMint thinks Americans will want his plan. “I think by trying to do it all at the same time we probably sent mixed signals to the American people,” the senator said. “For instance, having personal accounts don’t cause the need for benefit cuts or tax increases.”
Yet DeMint’s plan could dramatically expand an already record deficit. The bill would increase the federal debt by about $600 billion in 2016, because revenue credited to the government would be credited to private accounts, according to the Social Security Administration. Seventy-five years later, that debt burden is estimated by the Social Security Administration to decrease to $90 billion. Yet to DeMint, the calculation is a misnomer. “That is completely absurd,” he said. “All it does is reveal a deficit that we already have.”
That is true. Yet critics point out that such a drastic increase in the expressed deficit could lead investors in the currency markets to be increasingly wary of investing in the dollar. On the other hand, new savings could increase. For this reason, the economic impact of the higher deficit remains murky.
DeMint’s plan would delay the possibility of allowing individuals to invest in the stock market. Initially, the money from the breakup of the surplus would go to treasury bonds, but the door is left open to revisit that mandate and to allow greater percentages of the surplus to be invested privately at a later date, as well as investments to be moved to the stock market.
One of the minds behind Republican efforts to restructure Social Security, American Enterprise Institute economist Alex J. Pollock, strongly supports DeMint’s effort to put forward the “idea of being able to have a personal account with treasury securities in it, so that you have real assets,” he said. “If you look at regular Americans, if you make this treasury bond proposal purely voluntary and you give regular Americans the chance to decide to have their own account,” Pollack speculated, “I’m very confident a very large amount of people, probably a majority, will chose to.”
Emphasizing that the treasury bonds are indexed to inflation, he added, “What I like so much about the treasury argument is that it takes the risk away. In my view it is the ideal compromise of the two positions.” But like DeMint, Pollack believes Americans should eventually have the option to also invest their savings in private accounts.
Some Democrats have called for increasing the tax contributions of wealthier Americans to help Social Security’s solvency. And one Republican, Sen. Lindsey Graham of South Carolina, broke with the party and proposed raising the income level, currently capped at $90,000, subject to the 12.4 percent Social Security payroll tax. But Republicans balked at tax hikes for the wealthy. And Graham now backs DeMint’s plan.
“The key to solvency is saving money that people put into Social Security,” DeMint argued. “If solvency means just cutting benefits and raising taxes, I don’t want any part of it.”
Therein lies Grassley’s problem as chairman of the Senate Finance Committee. Democrats are not going to back Bennett’s bill, if they will at all, until the Republican leadership sponsors it. “But for every Democrat you pick up because [the Bennett bill] doesn’t have personal accounts,” Grassley said, “you probably lose one Republican.”
To Grassley, who said it is taking “a lot of effort” to forge a Republican consensus on how to proceed, the problem lies in the issue itself. “This being the third rail of politics, no one wants to deal with it. It’s just difficult to reach any judgment on it at all,” he said. “And we wouldn’t even be here if it wasn’t for the president. So praise the Lord the president even brings this issue up. I suppose I could say the same for Carter in ’77, Reagan in ’89 and Clinton in ’98.”
The Congress “wouldn’t have been here,” because both parties are worried about the 2006 midterm elections, as well as the 2008 presidential contest. Democrats don’t want to hand the White House and Republicans a massive social-policy victory along terms they see as intolerable. Yet, without Social Security reform, Republicans may have little to campaign on next year, especially with victory in the war in Iraq not in sight. “There is a Republican effort to try and keep the momentum from grinding to a complete halt,” Weaver said. “But it doesn’t look good if you get a Rehnquist resignation and Congress is occupied by a new Supreme Court justice.”
All the while, Republicans in Congress also fear being lambasted in upcoming campaigns for supporting tax hikes and benefit cuts. In the primary contests, it may reveal an opening for challenges from the right flank. In the general election contests, Democrats could attack from the left, having avoided putting forward their own plan on Social Security.
“It’s so polarized at this point, I don’t see any agreement being reached before 2006 and probably not until after the 2008 election,” Weaver continued. “Nothing has yet emerged that is likely to break Democratic unity. House Republicans are reluctant to move first because they don’t want to take the tough action of proposing major benefit cuts and then have the Senate do nothing, because they are sitting out on a limb, and Democrats in the midterm elections will come and saw off that limb.”