Bush’s Social Security Equation Comes Up Short on Money, Trust
Is it already time for the White House to unveil Plan B on Social Security?
That may seem premature, given both the infancy of the debate and President Bush’s track record in passing his agenda. But he’s facing a potentially decisive shortage of two ingredients indispensable to a cause as big as restructuring Social Security: money and trust. Without more of both, Bush appears to be headed for a crackup.
Bush still has important assets in this fight. He has shown he can unify Republicans behind his agenda. GOP legislators have seen tangible rewards -- a gain in seats -- from sticking with him. And the concern, especially among young people, that Social Security eventually won’t have enough money to pay promised benefits strengthens Bush’s case that something must be done.
Those are all reasons not to count out Bush as he presses his fundamental redesign of Social Security. “He doesn’t lose many of these battles when he puts his mind, his energy and his voice into it,” insisted one senior Republican strategist.
But even many of Bush’s staunchest allies are expressing open pessimism about his prospects on Social Security. GOP strategist Grover Norquist, the maestro of a broad alliance of conservative groups, talks about restructuring Social Security as a long-term goal that could require years of Republican electoral gains.
Why the gloom? While Bush has spent weeks formulating his proposal and marketing strategy, he’s allowed the debate to drift against him.
Except for Nebraska Sen. Ben Nelson, every Senate Democrat has expressed opposition to Bush’s core idea: diverting about one-third of the payroll tax that now funds benefits for retirees into individual investment accounts for workers. And even Nelson seems likely to join his colleagues.
Several Republican moderates, most prominently Senate Finance Committee member Olympia J. Snowe of Maine, have also criticized the idea.
Just as strikingly, Rep. Jim McCrery (R-La.), the chairman of the House Ways and Means subcommittee supposed to consider Bush’s plan first, told reporters last week that the White House probably would need to abandon the idea of carving out part of the payroll tax for investment accounts.
House Republicans always have been the shock troops for Bush’s agenda, and he may yet muscle them into line on Social Security too. But they are not volunteering to rush this hill.
They have good reason for caution: House Republicans are reluctant to pass a Social Security bill that might be used against them in 2006 unless they believe the Senate will also act. But the prospects of the Senate approving anything close to Bush’s idea appear dim.
The 43 Senate Democrats who have criticized investment accounts funded from the payroll tax could filibuster any plan including the idea if they hold together.
Bush might not even win a Senate majority because enough Republicans either have substantive reservations about the proposal or are reluctant to take such a high-risk step on a party-line vote.
Under any circumstance, it would be extremely difficult to convince many Democrats to support a plan that carves out money from the payroll tax for private accounts.
Most Democrats believe that would shred the safety net by reducing the funds available for guaranteed benefits and leave seniors too exposed to the risks of the market for their retirement. But the twin deficits of money and trust are compounding Bush’s difficulties.
Money is the most tangible problem. The payroll taxes on today’s workers fund the benefits for today’s retirees. If some of that money is carved out for private investment accounts, Washington must cover the difference.
In his 2000 campaign, Bush suggested he could fund those costs with the anticipated federal budget surplus. But after war, recession and three big Bush tax cuts, Washington is again running record federal deficits.
That means the federal government would need to borrow to fund the new accounts, as much as $4.5 trillion over the next 20 years, even while the national debt is soaring. Democratic centrists, and even the remaining Republican fiscal hawks, won’t accept that much more debt.
The trust deficit is equally formidable. Restructuring a program that directly affects as many Americans as Social Security almost always requires both parties to jump together. But Republicans are afraid Democrats will attack even the most responsible plans as a threat to seniors.
Most Democrats believe that Bush’s real goal isn’t to strengthen but to eviscerate Social Security. And after Bush’s aggressive first-term campaigning against even moderate Democratic incumbents, Democrats are dubious that cooperating with the White House will buy peace with it in 2006.
That’s a daunting collection of economic and political hurdles facing Bush’s idea of carving out investment accounts from the payroll tax.
A more promising alternative might be to establish investment accounts as an add-on to Social Security, funded by a new source of revenue (like a small consumption tax), not the payroll tax.
Washington could subsidize contributions workers make to their accounts with tax credits, creating in effect a universal 401(k) plan. With those funds available to future retirees, both parties might agree to modestly reduce guaranteed Social Security benefits, and increase payroll tax revenue, to close the program’s long-term financing shortfall.
Initially, Bush and most conservatives would probably resist add-on accounts -- an idea President Clinton favored -- as a costly new entitlement. But such accounts could offer Bush his best chance of promoting more ownership -- and winning spending cuts that help stabilize Social Security’s finances. If he wants a bipartisan Social Security deal -- and not just a fight to organize around politically -- they might offer his only chance.
Ronald Brownstein’s column appears every Monday. See current and past columns on The Times’ website at www.latimes.com/brownstein.