Many Promises, Few Plans on Social Security

Increasing Social Security’s reliance on the stock market and reducing guaranteed benefits for the elderly. Rolling back the next stages of President Bush’s tax cut and transferring trillions of dollars in general government revenue into the Social Security system.

These are likely implications of the principal Republican and Democrat proposals to improve the long-term solvency of the nation’s giant public pension program. But voters this fall would be more likely to hear House and Senate candidates confess to a crime than admit to any of that.

As Social Security attracts increasing attention in the 2002 campaign, candidates from both parties are professing their commitment to stabilizing the system. But they are offering voters almost no hint about how they would actually accomplish that.

“It is an abysmal display going on out there,” said Michael Tanner, director of the Project on Social Security Choice at the libertarian Cato Institute here. “We are having demagoguery on one side and cowardice on the other. Democrats attack a caricature of privatization and the Republicans run away.”

Against the backdrop of the falling stock market, GOP candidates are downplaying their longtime support for proposals to allow workers to invest part of their payroll taxes in stocks and bonds, the centerpiece of Bush’s agenda for restructuring the program. A handful, such as Rep. Charles W. “Chip” Pickering of Mississippi, have gone further and renounced the idea.

Democrats, while loudly condemning GOP proposals for private accounts, have been much fainter in describing their own ideas--partly because the most popular Democratic alternative for strengthening Social Security almost inevitably would require the party to challenge Bush’s tax cut, which few candidates this year are willing to do.

For the most part, Democratic candidates are taking the offensive on Social Security. They are betting heavily that concern about sagging stock prices will turn senior citizens and near-retirees against the notion of linking Social Security more closely to the markets through individual investment accounts.

“There will be ads on Social Security in every single race,” said Jim Jordan, executive director of the Democratic Senatorial Campaign Committee.

But some Republicans are trying to turn the tables, attacking Democrats for Clinton-era proposals that would have had the government directly invest surplus Social Security funds in the stock market. And in many places, Republicans are accusing Democrats of ducking the program’s long-term problems.

“I’m not going to put my head in the sand” on the issue, said Rep. Lindsey O. Graham, the GOP Senate nominee in South Carolina, during a recent appearance with his Democratic opponent, Alex Sanders.

Since the mid-1990s, individual accounts have been the centerpiece of GOP thinking on Social Security. Bush stressed the idea in his 2000 presidential campaign; last fall, a commission he appointed proposed three alternatives that would let workers divert about one-sixth to one-third of the 12.4% they now pay in Social Security payroll taxes into private accounts they could invest themselves.

Bush and other Republicans have long argued that such accounts would provide workers with more control over their retirement and allow them to accumulate wealth by tapping into the stock market’s historically higher rate of return.

The vast majority of Democrats have opposed such private accounts on the grounds it would shift more of the risk for funding retirement from government to workers, who could be caught short if their investment accounts lose money. Because the GOP plans would divert part of the payroll taxes now used to pay benefits into the investment accounts, almost all of the proposals would reduce the guaranteed benefit for retirees under Social Security.

These arguments have been simmering between the parties since the mid-1990s. But they acquired new urgency this year amid the growing concern about retirement security sparked by corporate scandals and the stock market’s decline.

This year’s disputes over Social Security start with an argument about what qualifies as privatization.

For years, advocates on both sides of the debate have commonly used the term “partial privatization” to describe proposals that divert part of the payroll tax into individual accounts.

But last spring, the National Republican Congressional Committee distributed an e-mail urging GOP candidates to resist using the term “privatization,” arguing that it “carries connotations of dismantling the publicly run Social Security system.” Now, for instance, Rep. Shelley Moore Capito of West Virginia is running ads saying she will “oppose privatization,” though she says she is open to creating private investment accounts.

Norm Coleman, the GOP challenger to Democratic Sen. Paul Wellstone in Minnesota, and Elizabeth Hanford Dole, the GOP nominee for an open Senate seat in North Carolina, also have said they oppose privatization, though they support individual investment accounts.

In a variation, Sen. Tim Hutchinson (R-Ark.), who is seeking reelection, and Rep. John R. Thune, the GOP Senate nominee in South Dakota, have run ads in which they pledge to defend Social Security but do not mention their longtime support for creating individual accounts.

“You have only 30 seconds in an ad,” says Christine Iverson, Thune’s communication director, when asked about the omission.

Thune’s opponent, Sen. Tim Johnson, has signed a pledge to oppose individual accounts. But Thune is running an ad accusing Johnson of supporting privatization because the senator expressed interest in Clinton-era proposals to let government directly invest the Social Security surplus in the market.

Johnson later voted for a resolution opposing the idea, which President Clinton abandoned. But Iverson said, “It is no stretch at all to argue that supporting the central government investing Social Security funds in the stock market is privatization.” In the same ad, Thune accuses Johnson of repeatedly “raiding” Social Security by voting for federal budgets that used taxes raised for Social Security to fund the rest of government.

But Thune last spring voted for a GOP budget resolution that used all of the $170 billion anticipated Social Security surplus in 2003 to fund the general operation of government.

“Thune is following the national Republican playbook on this--to distort your opponents’ position and do everything you can to avoid revealing your own,” charged Dan Pfeiffer, Johnson’s communications director.

But Johnson, like other Democrats, may be open to questions about how clearly he is revealing the implications of his own position.

When asked how he would strengthen Social Security, Johnson said his priority is to stop using Social Security funds to operate the rest of government.

That approach follows the Democratic thinking that emerged late in Clinton’s second term. The idea was to use the surplus temporarily accumulating in Social Security before the baby boom generation retires solely to pay down the national debt (an idea that became known as the lockbox). Shrinking the debt would have reduced the annual interest costs the federal government pays by more than $200 billion a year.

Clinton and Vice President Al Gore, the 2000 Democratic presidential nominee, proposed transferring those annual interest savings into Social Security, extending the expected solvency of the program past 2050.

But that idea has been undermined by the downward turn in government finances. The nonpartisan Congressional Budget Office recently estimated that the costs of the war against terrorism, the recession and Bush’s tax cut will force Washington to divert at least $1.6 trillion, and probably as much as $2.1 trillion, in Social Security funds to help operate the rest of government through 2012.

Johnson and other Democrats have given little sense of how they would improve the government’s balance sheet to avoid that. For instance, Johnson said he would oppose reconsidering the later stages of Bush’s 10-year, $1.35-trillion tax cut.

But even Democratic analysts such as Gene Sperling, Clinton’s White House economic advisor, say in the near term it would be almost impossible for government to balance its books without Social Security money unless it reclaims some revenue from the tax cut. “In our current fiscal scenario,” Sperling said, “I don’t see another way.”