Clinton, GOP May Find Common Ground in Social Security Reform

By now, even the hardiest pundit has grown leery of predicting the next turn in the struggle over impeachment between President Clinton and the Republican Congress. Only a few things still seem--relatively--safe to say.

It will end, someday.

It will end with President Clinton battered but still in office.

And it will end with the public approval rating for the Republican Congress in the tank.

At that point, the bitter combatants may find themselves with a common interest. Clinton and the GOP will both need policy agreements that help them change the subject from scandal. And nothing would change the subject more effectively than an agreement to reform Social Security.

In Washington, the smart money doubts that the two sides can reach such an agreement. That’s hardly an unreasonable bet. Restructuring Social Security to cover the financial shortfall looming when the baby boomers retire would require the two sides to untangle all sorts of knotty disagreements over how to trim benefits or increase revenues, and what role, if any, should be played by individual investment accounts.

And they would have to do all this in an atmosphere of intense distrust. Democrats fear that the Republicans’ real goal in any reform plan is to lay the groundwork for privatizing the system. Republicans fear that Democrats want to open negotiations only so that they can attack any GOP plan in the 2000 elections. The war over impeachment has left each side even more skeptical than usual about the other’s motivations.

But, for all that, there’s still a powerful incentive for Clinton and the GOP to reach agreement on Social Security: Without it, neither can accomplish much of anything else. That’s exactly what Clinton intended last January when he called on Congress to fence off the federal budget surplus until it approved a Social Security reform plan. Although that barrier has been breached around the edges (Republicans complain Clinton poached on the surplus to pay for $16 billion in emergency spending last year), the popularity of the president’s demand that Washington “save Social Security first” has prevented either side from diverting the surplus into significant new spending or tax cuts. “Social Security,” says Ari Fleischer, the spokesman for the House Ways and Means Committee, “is the cork in the bottle.”

As long as the cork is stuck, Washington will remain in a paradoxical position: flush but strapped for cash. Later this month, the administration and Congressional Budget Office are expected to estimate surpluses for the next decade even larger--perhaps much larger--than the $1.6 trillion the CBO predicted last summer. And that’s not just because Social Security is now taking in more than it pays out: Many analysts expect the new estimates to show the non-Social Security budget moving into the black soon too, with the surpluses growing over time.

But even with all that money accumulating, both parties could end this legislative session with empty pockets. Republicans are stockpiling tax-cut plans--including an across-the-board rate cut and a break for married couples--but without a Social Security deal, Clinton and congressional Democrats will feel little danger in blocking them.

Democrats could face a difficult year too. Even with Clinton’s plan to propose a new tobacco tax hike (which is unlikely to be enacted in any event), domestic programs will be squeezed to meet the spending caps approved in the 1997 balanced budget deal. Increasing the pressure will be the proposals from Clinton and the GOP to spend more on defense, which, under budget rules this year, will be directly competing with domestic spending for the same pot of money. Unless Clinton and Congress can agree to relieve the pressure by tapping into the surplus, many liberal groups could be howling when the budget is completed next fall.

Actually, although it would frustrate left and right alike, a failure to reach agreement on allocating the surplus wouldn’t be a policy disaster. If Congress and Clinton do nothing, the surplus will pay down the national debt. That slashes the government’s interest costs and produces a virtuous cycle in which surpluses could perpetuate themselves all the way into the middle of the next century, according to administration estimates. “If you started [by asking] what would be the right economic policy for the current time, paying off some of the debt and putting some downward pressure on interest rates would be precisely what you want to do,” says budget expert Stanley E. Collender of the public relations firm Fleishman-Hilliard Inc.

Reducing the national debt may be a worthwhile goal. But most in both parties don’t consider it the only worthwhile goal for the years ahead. The same thing is true about solidifying Social Security: It’s a paramount need but not one that should necessarily absorb all of the coming surpluses. As one senior administration official pointedly noted last week, even Clinton has never said the final reform plan must devote all of the surpluses to Social Security--a position that leaves him closer to congressional Republicans than is commonly assumed.

If all of the surpluses don’t have to be used for Social Security, the question then becomes how to divide them. Congress has a model for the answer: The 1997 budget deal, which drew broad bipartisan support by blending tax cuts, new education and health care spending and enough cuts and reforms elsewhere to balance the books. Today, key players in both the administration and Congress can envision a 1999 agreement that devotes most of the surplus to Social Security, reforms the program (perhaps with supplementary individual investment accounts used to offset modest long-term reductions in benefits), and then divides the rest of the surplus between tax cuts that attract Republican votes and domestic spending that draws Democrats.

For the next few years, the surpluses (especially in the non-Social Security budget) won’t be large enough to pay for all the tax cuts and new spending the two sides envision. But unless they can unlock the surplus with an agreement on Social Security, Clinton and the GOP are unlikely to make any real progress toward their tax and spending goals. That nightmarish prospect may be the one force powerful enough to compel these two bitter antagonists to join hands on a Social Security reform that long outlives them both.