MOBILIZING FOR THE SOCIAL SECURITY WARS

After an election in which scores of candidates from both parties pledged to “save Social Security,” everyone in Washington appears eager to tackle the issue of reforming the nation’s most popular government program. The House Ways and Means Committee could not wait until the start of the new Congress, holding a hearing two weeks ago, and the White House will host a national Social Security conference Dec. 8-9. So far, this has been a polite discussion, with appeals for bipartisanship.

Don’t believe it. Behind the scenes, both political parties and powerful interest groups are girding for an epic battle. At the center of the brawl will be the issue of partly “privatizing” the system: diverting a portion of payroll taxes into personal-investment accounts, invested in stocks or other securities, to provide retirement income. Republican leaders appear to be committed to the idea as an essential component of a reform plan, though few had the courage to mention this during the recent campaigns. With a few exceptions, Democrats oppose privatization on the grounds that it introduces too much risk into a system dedicated to providing a legally guaranteed core-retirement income and requires deep cuts in benefits.

If Republicans do make a strong push for Social Security privatization, it will represent an enormous political miscalculation. In fact, the emerging debate over privatization is looking a lot like the 1993-94 health-care debate, but with the party labels reversed.

Then, health-care reform was widely considered inevitable, and the only question was how far-reaching it would be, as pundits now say of privatization. Then, Democrats were sure they had an easy political winner, but they radically underestimated the difficulty of making big changes in programs important to Americans’ daily lives. Now, the GOP is guilty of the same conceit. The parallel may well continue to the denouement: a crushing legislative defeat, perhaps without even the courtesy of a formal vote, that brings political ruin on its sponsors.

There are four main factors that combine to make privatization improbable, if not impossible: the program, the pain, the particulars and the politics.

The program. Conservatives fundamentally misunderstand public sentiment toward the Social Security program, mistaking anxiety for disenchantment. Working Americans are worried about the system’s future, with polls showing that only four in 10 expect to receive substantial benefits at retirement. Privatizers take this to mean, almost axiomatically, support for radical change. But the public has a more straightforward reaction, saying, by two to one, that Congress should “fix Social Security by strengthening its financial condition,” rather than “replace Social Security by allowing people to invest [payroll] contributions in the stock market.”

Republicans seem to think this a replay of the welfare-reform debate, failing to appreciate that Social Security is a vastly more popular program. A better analogy is the debate over national defense in the late 1970s. At that time, the public was concerned about military preparedness and feared the armed forces were not up to meeting the challenges they faced. The GOP took advantage by calling for more defense funding, just what the public wanted. Now that it is Social Security that faces trouble, the Republicans offer a far different solution, the equivalent, in military terms, of saying, “We’ll let the armed services decline, and give every family its own M-16.” But the public’s view remains the same: Give this vitally important program the resources necessary to get the job done.

If anything, poll results that consistently show strong and cross-generational support for Social Security may even understate Americans’ commitment to the system. After 60 years of never missing a payday, we all take the system for granted. People often don’t realize how much they value something until they face the prospect of losing it. The same will be true of Social Security and its central promise of a guaranteed, risk-free baseline retirement income.

The pain. Advocates have sold the idea of private-investment accounts as an alternative to painful benefit cuts. This notion will not stand up to even minimal scrutiny as the debate unfolds. The most credible privatization plan advanced thus far, from the National Commission on Retirement Policy, would reduce guaranteed monthly benefits by 30% or more, raise the retirement age to 70 by 2029 and cut disability payments. These are extremely unpopular ideas, and polls find overwhelming public rejection of such a plan.

Privatizers reply, with some justice, that any plan that addresses Social Security’s projected funding problems must involve some pain. But moving toward a partly privatized system involving individual retirement accounts would be enormously costly, because it would deprive the already-underfunded trust fund of about one-sixth of its revenue stream, while the system continued to pay full benefits to older workers and current retirees, who have no private accounts. These transition costs mean that any privatization plan must make far deeper cuts in benefits than would be required to deal with current projected shortfalls.

The particulars. Creating private accounts may sound simple, but it is actually a tremendously complex and expensive undertaking. As President Bill Clinton learned with his health plan, the devil is in the details. It was the details of the Clinton plan that brought it down, as Republicans identified its controversial or confusing aspects and attacked them repeatedly. The same dynamic is at work with privatization. As long as conservatives discuss privatization at a general or philosophical level, they can avoid harm, but eventually they must lay a plan on the table, and that will be subject to withering criticism.

In formulating a plan, privatizers must answer many difficult questions. Whatever answer they give, there is room for criticism. Will people be free to make any investments they want (what about fraud?), or will they pick from a limited menu (who sets the menu?)? Will the government run these accounts (socialism!), or will private investment firms control them (profiteering!)? Can people cash out their accounts at retirement (risky), or will they be required to buy annuities (expensive)? Will employers bear the administrative and record-keeping costs (burdensome regulation), or will the government pay them (bureaucracy)?

What will become clear is that privatization is expensive, whoever ends up running the system. Administering 140 million accounts, most of which will have only a few thousand dollars, is a huge undertaking. Today, the Social Security Administration keeps administrative expenses to just 1% (that’s right: 99% of the taxes we pay go back out the door in benefits). Private accounts could easily be 20 times more expensive to manage.

The politics. When it comes to the political alignments around Social Security privatization, parallels to the Clinton health plan are again striking. In 1994, Democrats seemed to have momentum, while Republicans initially wavered over how to respond to the drive for health-care reform. But the GOP’s conservative base rallied to the banner of opposition, the congressional delegation locked arms to stand against the plan and the Democratic majority fractured.

Now, it is the Democratic base of union members, liberals and African Americans, empowered by its Nov. 3 triumph, which led to the resignation of House Speaker Newt Gingrich (R-Ga.), that is ready to march into battle to save the greatest Democratic legacy: Social Security. Senior organizations can be expected to join this grass-roots movement. Congressional Democrats are wavering, with some supporting private accounts, but the advantages of standing together against a fractured GOP should be increasingly apparent to moderate and conservative Democrats. On the other side, it will only take a few bad poll numbers to scare Republican members in swing districts and battleground states away from privatization.

The political wild card here is Clinton, who has, on occasion, spoken kind words about private accounts. Were he to embrace privatization, it would drive a great wedge into his party. The ensuing Democratic civil war would make the 1993 fight over the North American Free Trade Agreement look like a unity celebration, doubtless leading to another demobilization of the Democratic electorate and endangering his vice president’s presidential bid. Clinton might not even secure the legislative victory he won with NAFTA.

For Clinton, embracing privatization would constitute a terrible strategic error, not to mention a cosmic ingratitude to the same core Democratic constituencies that rallied to his defense and apparently saved his presidency. For the first time in a generation, the Democratic Party is more unified than the Republican. Division on Social Security would quickly end that. There would also be considerable irony in Clinton intervening to save Republicans from their own version of his health-care debacle.

The parallels between 1994 and 1999 are, of course, imperfect. In at least two respects, the circumstances today differ from the health-care debate, and both augur poorly for privatization. First, in pushing health care, Democrats were playing to a historic strength of their party. Republicans, however, are not intuitively trusted by voters to safeguard Social Security. While privatization will be advertised as a way to “save” Social Security, this has less credibility coming from a party that can never quite hide its 60-year resentment of the program’s success.

The second difference might be called the “missing mandate.” In 1992, Clinton told anyone who would listen that universal health-care coverage would be among his top priorities. Whether or not you accepted his solution, no one could question his mandate as president to press for action. Republicans, however, just completed a campaign in which virtually none of their candidates admitted to supporting privatization of Social Security. In a recent poll by the Campaign for America’s Future, 86% said candidates did not tell them what they had in mind for changing Social Security. How will Republicans explain this omission as they now press for radical change: “We forgot to mention it”?

It was the failure of Clinton’s health-care reform that, more than any other single factor, brought the GOP congressional majority to power. The attempt to pass the plan mobilized and unified Republicans, while its failure demoralized Democrats. If Republican hubris produces an aggressive push for Social Security privatization, the story could well be repeated with precisely opposite partisan consequences: bringing down the GOP majority in 2000.