Door Closing on Social Security Fix

When Bill Clinton and Bill Archer, in the twilight of their political careers, walked across Pennsylvania Avenue to the White House last December, Social Security was on their mind. So was their standing with future generations.

Clinton, the Democratic president, wants the history books to say that he saved the country’s most popular program from bankruptcy. Archer, the Republican chairman of the House Ways and Means Committee, seeks to guarantee that his 13 grandchildren someday will collect Social Security benefits.

But messing with Social Security is a risky business, and it has put this political odd couple together on Washington’s high wire. Down below, many of their usual allies hope they will fall.

They probably will. And that says a lot about how Washington works--or, more precisely, doesn’t work.

Clinton’s plan uses projected budget surpluses to shore up the Social Security system and invests part of the funds in the stock market to increase returns.

Archer would use projected budget surpluses to change the system, giving every worker money to invest in a private retirement account.

Rescuing Social Security from eventual bankruptcy sounds like apple pie and motherhood. The trouble is that the crisis is estimated to be 35 years away--far beyond the time horizon of all but the most forward-looking politicians.

A modest course correction now could solve the problem. The longer the government waits, the sharper the turn will have to be. But many influential people calculate that it would be to their advantage if no Social Security deal emerges before Clinton and Archer leave office.

Among Democrats, many dream of recapturing control of the House in next year’s elections. They think that they will have a strong campaign issue if they can blame Republicans for blocking a Social Security rescue package, just as they scored points in 1996 by accusing Republicans of wanting to rob Medicare so the wealthy could have tax cuts.

“The Republicans will try to hide from the issue and we won’t let them,” vowed Roger Hickey, organizer of the New Century Alliance for Social Security, which includes the AFL-CIO, the National Assn. for the Advancement of Colored People and the Urban League.

On the Republican side, many conservatives want to convert Social Security into private retirement accounts controlled by individual workers. To them, anything short of that represents a sellout, and they do not believe Archer is in their camp.

“I’m going to yell and scream. I’m going to stand on my soapbox and pull my hair out until we get something done,” said Rep. Nick Smith (R-Mich.), chairman of the House Budget Committee’s Social Security task force.

Archer and Clinton do not mind such criticism. Archer speaks proudly of being in the sights of “certain ideologues of the right and the left.”

A Fundamental Imbalance Seen

That’s easy to say for someone who plans to retire from Congress at the end of next year, after 28 years in office. Not so comfortable is another charge against Clinton and Archer: that their plans merely shove Social Security’s day of reckoning a few years down the road without doing anything to correct the fundamental imbalance between the elderly’s benefits and taxpayers’ ability to pay for them.

Clinton’s strategy, says the Concord Coalition, which has long campaigned for Social Security spending controls, “makes no attempt to reduce the long-term growth in senior benefits, whose unsustainability is the very reason that reform is now being discussed at all.”

Clinton and Archer forged their unlikely alliance at December’s special White House conference on Social Security, which actually met across Pennsylvania Avenue at Blair House. They sat side by side during the meeting and, upon its conclusion, kept talking as they walked to the White House.

The president and the chairman have continued to meet, most recently May 19, to plot strategy. Archer said that he would conduct hearings in June on his rescue package. Clinton said that he would encourage congressional Democrats to cooperate and promised no political reprisals against Republicans who support reform.

Neither Clinton nor Archer would ask future retirees to swallow cuts in benefits. Their solution would spread the pain instead among the tax-paying public.

A Huge Surplus Is Now Growing

Both Clinton and Archer talk grandly of fencing off expected government budget surpluses for Social Security. In fact, that is another way of saying they would rescue Social Security with a colossal infusion of revenue raised by the income tax.

Social Security now is a pay-as-you go system financed by a 6.2% payroll tax on workers, matched by an equal contribution from their employers. The take from today’s 147 million workers is more than enough to cover the monthly checks for 44 million beneficiaries. As a result, the Social Security system has a surplus that is gigantic, about $778 billion, and growing.

Huge as that sounds, the surplus is not expected to withstand the pressure exerted by the retiring baby boom generation. When the surplus is exhausted in 2034, Social Security’s trustees estimate, annual payroll tax revenues will be enough to cover only 72% of promised benefits.

No politician of any stripe has much appetite for closing the gap either by boosting payroll taxes or trimming benefits through, for example, reducing the annual cost-of-living adjustment or raising the retirement age.

But there is another way out. It happens that a huge pile of government money is just now beginning to accumulate--the annual surpluses that the government began running this year in everything it does, excluding Social Security. To Clinton and Archer, this is the perfect answer to Social Security’s problems.

Clinton would pump $1.8 trillion of the projected surpluses into Social Security, enough to keep the program afloat for another 15 years beyond 2034.

The president would also invest part of the trust fund surplus in the stock market to give it a higher return than it gets from the Treasury securities in which it now is invested. (Stocks have yielded about 10% a year over the long term, compared with about 6% for Treasury securities.) That would keep Social Security solvent until 2055.

What would he do after that? He isn’t saying. Instead, he is offering to negotiate with Republicans over unpleasant things like benefit cuts and tax hikes.

Archer also would rely on future budget surpluses but would use them to transform the nature of Social Security. At a cost of about $1 trillion over 10 years, he would give every worker an amount equal to 2% of their wages, with the money to be invested in a private retirement account composed of 60% stocks and 40% bonds.

What if some workers’ investments turn sour? Archer would guarantee that no worker’s retirement benefits could be less than the Social Security benefits promised under current law.

Although the two approaches differ in many ways, they are alike in depending on an infusion of outside revenue rather than making Social Security self-sustaining.

“Once Clinton came up with a plan without any political pain, then the Republicans also had to come up with something without pain,” said Ron Gebhardtsbauer, senior pension fellow of the American Academy of Actuaries.

A small minority of each party, dubbed the “pain caucus” by their colleagues, is seeking to assure the long-range solvency of Social Security without relying on predicted budget surpluses. Their approach forces them to advocate such potentially explosive steps as trimming the annual cost-of-living benefit increase.

This group would create private accounts, carving out a chunk of Social Security taxes and permitting workers to invest the money in stocks and bonds. Advocates say that it should appeal to younger workers who want a better return on their money than they could get from Social Security.

Even some of those who would like to wield Social Security as a campaign weapon admit there is a chance that Clinton and Archer will reach agreement.

In December, the two agreed there was a window of about eight months for them to act before presidential politics slammed it shut.

“I’m optimistic,” Archer said recently. “But the window is closing.”