Who’s Looking Out for Nation’s Social Contract?

The future of the safety net protecting the average American--Social Security, Medicare and the rest--strengthened a bit last week when Congress decided not to raise Medicare premiums and the Medicare retirement age.

Though cutbacks are surely coming. A bunch of middle-aged U.S. senators, who call themselves poor on $133,000 a year, have no qualms about demanding a surcharge on “wealthy” 66-year-old Medicare couples living on $75,000 a year. Seventy senators voted for that surcharge, and they’ll be back. President Bill Clinton even held a press conference to say: Me, too.

But at least the House of Representatives sensed it might not be smart to whomp Middle America on Medicare at the same time it’s giving upper-income investors a capital-gains rate reduction. The same tax-cut and Medicare-squeeze connection was unpopular in the budget debacle of 1995. Possibly the memory lingered.

But what may be the most important sign of all is the terminology used by two of the most prominent critics: Sen. Edward M. Kennedy (D-Mass.) and House Minority Leader Richard A. Gephardt (D-Mo.). They said this kind of change violates America’s “social contract.”

It’s about time this point was made, though you may need a definition. Is the “social contract” being discussed in Washington: a) the name of an upscale dating service in Little Rock, Ark.; b) the title of a book by 18th-century French philosopher Jean-Jacques Rousseau; c) a term for the postwar U.S. political consensus to protect the interests of ordinary Americans, which the Congress and the president seem inclined to dump; or d) all the above?

For sure, “b” and “c”--and the one to note is “c.” Most of the federal safety-net programs were put in place between the 1930s and the 1960s. As late as the early 1980s, however, even conservative politicians were insisting they wouldn’t be cut--that supply-side economics would unlock so much growth that the safety net in the United States, like the welfare state in Europe, would flourish.

Since the late 1980s, however, that commitment has been withdrawn. Governments have sought to reduce or reshape health programs, pensions and education spending--sorry folks, budget pressures--even as they manage to find the money to cut taxes that fall most heavily on wealthy individuals and corporations. This is what Kennedy and Gephardt are criticizing, though it’s easier to talk about violating the social contract than to define what it actually is.

Yet, if our politicians are going to have any credibility in proposing solutions to the runaway costs of Social Security and Medicare--and, for that matter, to the runaway costs of election campaigns--they’re going to have to start taking a candid look at who has gotten what over the past 10 to 15 years; how straightforward or corrupt these changes have been, and how they stack up against the implicit promises of 30 or 40 years ago.

Take the campaign-finance hearings that began in Washington this month. They haven’t attracted a whole lot of applause for a very plausible reason. The people running them want to point at specific, limited abuses, mostly involving foreigners, and say: Isn’t this awful?

What they don’t want to do is add up the whole tawdry bipartisan blow-out, admit that Congress and the White House have broken an “ethical contract” with the electorate and then shape laws to drive big money out of politics. Assembling the whole picture for voters to froth over and demand action isn’t in the script.

It is true, the social contract is less than precise. Before the French Revolution, Rousseau wrote that governments, in essence, had a contract with those they governed. This idea isn’t much more popular in the Washington of the 1990s than it was in 1790s France, because government, once again, seems to exist more for the few than for the many.

Forty years ago, that wasn’t so. President Franklin D. Roosevelt had more or less set out a deal--a New Deal--that government, in general, and Social Security, in particular, was a compact with the average citizen. Roosevelt said he had wanted Social Security to be paid for, in part, by individual tax contributions so that contributors were entitled to it, so the program couldn’t be means-tested and turned into welfare.

In the 1960s, Medicare was added to the same FICA system on a similar payment principle. Now, Social Security and Medicare are both at risk.

Many Republicans, but also some Democrats, want to scrap the old Rooseveltian approach. They want to privatize Social Security and Medicare, or they want to means-test them so that each can be split--part (for the poor) to become de facto welfare; part (for the better off) to be handled by private fiscal management or insurance.

This, in turn, grows out of a larger change that began in the 1980s: Cut taxes that mostly fall on the people at the top; cut or forego services mostly used by and vital to the people in the middle and at the bottom. If the Rooseveltian blueprint involved redistribution of income downward, the essence of the new one--tax reduction, spending cuts, deficit reduction--has pushed redistribution in the other direction: away from labor and ordinary people toward capital and the financial elites. When Kennedy and Gephardt talk about the breach of the social contract, they are really talking about these new trends and whether they’ll continue.

This debate should be enlarged and broadened. For years, we have seen the ever clearer results of social-contract breakage. A new book, “Money: Who Has How Much and Why?”, reports that since 1975, the top 5% of Americans have increased their inflation-adjusted incomes by 54%, the middle 20% by 6.7% and the bottom 20% by 1.5%.

Democrats like to say this is principally because of Republican greed. Partly, to be sure. Republicans are more committed to reversing the New Deal and privatizing the safety net. But over the last five years, Democratic cowardice has been just as big a contributor.

In 1991, Clinton, as a longshot presidential candidate, talked about these trends in detail and with emotion. When he closed in on the presidency in 1992, his words grew bland. Since then, he has offered occasional rhetoric, but almost no action. Indeed, it was his 1997 budget compromise with the GOP--his willingness to conjoin Medicare cuts with capital-gains tax breaks for the upper brackets--that legitimized an anti-Rooseveltian tide that otherwise would have been stymied by hostile public opinion polls and the growing fratricide among congressional GOP leaders.

Treasury Secretary Robert E. Rubin has been bolder than the president, saying no tax package should be accepted this year that worsens the current income distribution. In 1996, GOP critics on Congress’ Joint Economic Committee pointed out, as Rubin would not, that, in real terms, median family incomes had declined under Clinton through 1995. Small wonder that it has taken non-administration Democrats like Kennedy and Gephardt to raise the social-contract aspect.

Now that the Senate’s controversial Medicare proposals have died in the House-Senate budget conference, the changes needed in Medicare and Social Security could require some kind of national commission. This is precisely where the social-contract yardstick, with its equity mandates, should be applied or even required.

Sacrifice should not be imposed on Social Security or Medicare recipients until it’s imposed on everyone else. Means-testing, for example, could destroy broad support for the programs. In Medicare at least, fraud is rampant--$23 billion a year in one recent audit. Strong criminal statutes could save the government far more money than means-testing and age changes. Finally, if taxpayer-funded bailouts have been used to rescue Mexican-peso investors and commercial-bank shareholders, they certainly can be used to rescue the nation’s elderly.

Considering the massive and willful breach of the Rooseveltian commitment that has occurred over the decade or two--under Democrat Clinton as well as under Republicans Ronald Reagan and George Bush--any bipartisan reform of the Social Security and Medicare systems should be postponed until an even more important debate is begun: a coast-to-coast national town meeting on the 20th-century U.S. social contract and what it should mean for 21st-century America.