Bush’s Plan Not Only Path to Social Security Reform

Maybe the most important question facing the Social Security reform commission President Bush appointed last week is deciding which question to ask.

All signs suggest that the commission is asking: What’s the best way to implement Bush’s campaign proposal to restructure Social Security so that workers rely more on the stock market to fund their retirements? But alternately, the commission could ask: What sort of Social Security reform could attract bipartisan support in Congress and the country?

Asking how best to implement Bush’s plan assumes that the greatest challenge for reformers is finding the ideal means to reach the end the administration prefers. Asking what ideas could attract broad support acknowledges that the greatest challenge is building a consensus for changing a program that directly affects virtually every American.

If Bush has any doubt which approach makes more sense, he need only recall the Clinton administration’s experience with health care. In 1993, Hillary Rodham Clinton’s task force spent months designing a plan that would enshrine in law her vision of the ideal national health care system. The problem was that the construction appealed to almost no one outside the Democratic Party base. Eventually, the plan died without a vote on the House or Senate floors.

Bush faces the same risk with Social Security. He’s already indicated his preferred solution: He wants to give younger workers the right to divert part of their payroll taxes--probably around one-sixth of the amount they now pay--into individual accounts with which they can invest in stocks or bonds. Conservatives love these accounts as a means of shifting power from government to individuals; the problem is that almost all Democrats reject the idea as a threat to the collective safety net that ensures the elderly a baseline of security. Even many moderate Republicans are leery, especially since the stock markets have nose-dived.

Among Senate Democrats, only John B. Breaux of Louisiana now publicly supports the idea of diverting part of the payroll tax into personal investment accounts. A few others might eventually follow; Zell Miller of Georgia, Bush’s tax cut ally, had kind words for the commission. But the number of Democrats willing to “carve out” individual accounts from Social Security will always be minuscule. For the vast majority of Democrats, diverting payroll taxes to individual accounts raises the same concern as private school vouchers--the danger of undermining communal public institutions that provide a guaranteed service for all.

“We decided back in the 1930s, that for a modern society to have the elderly living in abject poverty is not acceptable,” says Sen. Evan Bayh (D-Ind.), who personifies the resistance to carve out accounts even among Democratic centrists. “Without the minimum guarantee, you run the risk of going back to that.”

The commission’s work may actually make it tougher for Bush to attract Democrats--and hold moderate Republicans--to his plan. During the campaign, Bush never acknowledged that workers opting for the voluntary investment accounts would face a reduction in their guaranteed benefit under the traditional program. (“Maybe, maybe not,” he famously said.) But every serious proposal to fund individual accounts with the payroll tax has imposed significant benefit cuts over the long term. Because the payroll tax is now used to fund current benefits, there’s no other way to make the numbers add up if a significant chunk of that revenue is funneled into the individual accounts. The privatization plan that former Sen. Daniel Patrick Moynihan (D-N.Y.)--now the chair of Bush’s commission--introduced in 1999 would have cut guaranteed benefits by nearly a third when fully phased in.

The hope is that workers would accumulate enough assets in their private accounts to offset those losses. But there’s no guarantee that anyone will come out ahead; privatization skeptics such as Henry Aaron, a Brookings Institution economist, insist most workers won’t. And that risk will become much more explicit once Bush’s commission attaches actual numbers to the broad proposals he’s offered so far.

Yet there’s also risk for Democrats in this debate. Most Democrats believe that support for diverting payroll taxes into private accounts will shrivel once Americans see the cuts such a plan would require in the guaranteed benefit. But with Social Security facing a long-term financial squeeze as baby boomers retire, benefits also will have to be cut--or taxes raised--if nothing is done. And simply defending the status quo could be dangerous for Democrats when many younger workers fear that those demographic pressures will crush the program before they retire. Polls make clear that, while concerned about benefit cuts, most Americans like the idea of incorporating some private investment component into Social Security.

Even veterans of the Clinton health care crackup agree that it makes sense for Bush to begin by advancing his ideal reform plan. The question is whether he’ll later bend to political reality, which the Clintonites wouldn’t do until it was too late. It’s not clear whether Bush could muster 51 Senate votes for his plan--but even if he could, many in the GOP think it would be suicide to restructure Social Security with only Republican fingerprints. “Social Security is a three-generation success story in American politics and it’s not going to be changed, and should not be changed, on a one-vote party-line vote,” says GOP pollster Bill McInturff, a staunch privatization supporter. Moynihan’s scars from the health care debacle should help him understand that too.

If Bush looks for consensus, his drive to redesign Social Security could have the beneficial effect of forcing both parties to consider more comprehensive changes than they have so far. One option for a deal: Instead of trying to carve out individual accounts from the payroll tax, Republicans could accept the use of general revenue to provide workers tax incentives to establish investment accounts as a supplement to Social Security, rather than a substitute for it. In turn, Democrats could accept some modest benefit cuts to narrow the program’s long-term financing squeeze. Such a deal would establish the principle of private accounts while tempering the reduction in guaranteed benefits a carve-out plan would require.

Answers like this may eventually come within reach--but only if Bush and Congress begin by asking the right questions.

*

Ronald Brownstein’s column appears every Monday. See current and past Brownstein columns on The Times’ Web site at: https://www.latimes.com/brownstein.