Friday, Aug 29, 2008
Bush's Social Security plan is in deep trouble. But if he's slick enough to change course, Democrats could be the big losers.
Feb 14, 2005 | Is the White House's plan to privatize Social Security already sunk? Just a week after George W. Bush used his State of the Union address to launch his ambitious plans for the retirement program, his ideas already seem to be foundering with the public and in Congress. Bush spent the second half of last week touring a half dozen red states in an attempt to pressure Democratic senators to sign on to his scheme. On Thursday, he also talked up the plan in Pennsylvania and North Carolina.
So far the gambit has yielded little success; even Democrats, who've previously been friendly to Bush's domestic policies, are now expressing unambiguous opposition to this idea. Indeed, Bush doesn't even have all the Republicans with him. A few in the GOP already oppose the Bush plan, such as Sen. Olympia Snowe of Maine, who sits on the Committee on Finance, critical to passage of the plan, while many refuse to say where they stand, including Sen. Chuck Grassley, R-Iowa, the Finance Committee's chairman.
The chances that Congress will quickly pass the kind of plan that Bush has outlined -- one in which workers would be allowed to divert their Social Security taxes into private accounts invested in the stock market -- are now "slim to none, and slim has just left the building," says Norman Ornstein, a veteran Congress watcher at the right-leaning American Enterprise Institute.
But as bad as things may look for Bush, Ornstein and other opinion makers don't believe that Social Security reform is toast. Indeed, if Bush plays his cards right, they point out, and reshuffles his proposal with ideas long endorsed by centrists on both sides of the aisle, the president could actually emerge with some good legislation - a plan that doesn't privatize Social Security, as his current proposal does, but instead fixes long-term problems with the retirement program.
It's true that right now the White House seems unlikely to adopt a more palatable plan. But a law that institutes actual reforms to Social Security would be pretty good for the country, and would be seen as a win for Bush and probably a loss for Democrats. Which is exactly why, if the political outlook for the current plan remains dim, Democrats should begin to worry that Bush may become uncharacteristically reasonable.
At the moment, it's not hard to see why lawmakers are wary of supporting Bush's reform: The public is wary of it, too. While polls taken just after the State of the Union speech showed strong support for the president's plan, recent surveys have not looked encouraging for the White House. A Washington Post poll released Thursday suggests that while a slim majority of Americans supports Bush's idea to allow workers to invest payroll taxes in the stock market, the support is "weakly held." When told that the Bush plan would require trillions of dollars in transitional costs, most people changed their minds.
Barbara Kennelly, a former Democratic House member from Connecticut who now heads the National Committee to Preserve Social Security and Medicare, an advocacy group that opposes the Bush plan, says that as recently as a couple of months ago she feared that Bush would get his proposal through Congress in a matter of weeks. In fact, she says, Bush had been banking on speedy approval. "The president would very much like to have this go through quickly, because it really is the kind of case that the more you find out about it, the worse it gets." Any hesitation would give opponents time to educate the public about its flaws. Which is now happening.
What caused the slowdown? "I think it can be summed up in two words: deficit financing," Kennelly says. In Washington during the past week, she notes, everyone had a single fear: ballooning federal deficits. The White House's budget proposal, released on Monday, may call for enormous cuts to many vital social programs, but nobody who's serious about such issues believes the budget brings the nation any closer to fiscal responsibility. Lawmakers also recently got their first taste of the true costs of the Medicare prescription-drug law that Bush signed two years ago. At the time, the White House told Congress that the plan would cost $400 billion for 10 years; on Tuesday, it acknowledged that the Medicare plan would require at least $732 billion, and possibly more than $1 trillion, between 2006 and 2015.
The federal government's books are bathed in red ink: Over the next couple of decades, we'll need to pay for the Iraq war, Homeland Security and Medicare drugs. Bush also wants his expensive tax cuts to be made permanent. In addition, both Republicans and Democrats want to jettison the Alternative Minimum Tax, which would cost a few hundred billion dollars.
So how, lawmakers are wondering, can we pay the trillions necessary to set up the new Social Security private accounts? "When [former Treasury Secretary Paul] O'Neill would sit with Alan Greenspan in the year 2000 and talk about privatizing Social Security, they could say we'll take a trillion out of the surplus and finance it with that," Kennelly says. "Those days are long gone."
Supporters of Bush's plan have long maintained that if the president takes his case to the public, Americans will force their representatives to support private accounts, no matter what the cost. From tax cuts to the Medicare bill to the war in Iraq, Bush has shown a near-magical capacity to convince Americans of the rightness of his policies, however wrongheaded they may appear on paper. But convincing Americans to support tax cuts may prove much simpler than persuading them to make drastic changes to Social Security, a program that enjoys broad support across the nation.
Moreover, the White House propaganda machine hasn't been firing on all cylinders lately. In contrast to the simple plan that Bush put forth in his State of the Union speech, the administration's actual proposals, revealed in a series of press briefings, are nearly as Byzantine as the tax code and seem unlikely to be embraced the average worker.
Even the president doesn't appear to understand his own plan. In a much-mocked bit of campaigning gone awry in Tampa last week, Bush fumbled his way through an explanation of it. "There's a series of parts of the formula that are being considered," he told an increasingly baffled audience. "And when you couple that, those different cost drivers, affecting those -- changing those with personal accounts, the idea is to get what has been promised more likely to be -- or closer delivered to what has been promised." He added: "Does that make any sense to you? It's kind of muddled."
Many economists themselves see the Bush plan as muddled -- and say it doesn't add up for retirees. People who choose to invest in private accounts must first accept a cut in future Social Security benefits, and that cut must equal the size of their investment plus 3 percent. Those who go the private-account route must be sure that the accounts will yield at least a 3 percent gain over inflation -- which is certainly not guaranteed. As the Washington Post points out, few economists believe that stocks will return substantially more than 3 percent above inflation over the next 50 years or so. That's because as people of the baby-boom generation begin to retire in the coming decades, they'll start selling off their 401Ks, causing stock prices to lag.
The White House hasn't said whether it wants to cut traditional Social Security benefits, but it has hinted that it will. Bush is fond of telling people that Social Security is headed toward bankruptcy. But economists call that a lie. In fact, last week, Bush was forced to admit that private accounts, by themselves, would do nothing to affect the long-term solvency of the program. The only actions that will improve Social Security's balance sheet is an increase in payroll taxes or a reduction of benefits, or a combination of the two. Bush says that he'll consider every proposal to make Social Security solvent except for raising taxes. What this means is that as far as Bush is concerned, the only way to reform Social Security -- the only plan that's on the table -- is reducing benefits.
In other words, Bush's private-accounts plan is complex, risky and expensive, and it would require cuts in benefits to Social Security. It's no wonder that politicians aren't lining up to support him.
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