The Battle Begins

Social Security is the most successful program that tangibly delivers on the core philosophy of the Democratic Party -- namely, that ordinary people depend on government for economic security that markets can't provide. Unlike recent token programs, Social Security delivers serious money, to the middle class and the working poor alike. Without Social Security, a third of America's seniors would be destitute.

Despite its broad popularity, however, Social Security could succumb to a Republican privatization scheme as early as April. Yet this could also be the comeback battle in which Democrats recover both their souls and their political energy. They could hand George W. Bush a rare, humiliating defeat that breaks his winning streak and exposes Republican divisions.

Bush wants to divert part of the Social Security payroll tax to a new system of private retirement accounts. Privatization would be partial and optional. Individuals could still stick with traditional Social Security for all or part of their retirement. The Republicans hope to scramble two entirely distinct issues: how to deal with a quite modest shortfall in the present Social Security system and whether substituting individual accounts is a good idea at all, shortfall or no.

The Bush scheme has huge defects. The basic Social Security benefit would have to drop by 25 percent to 50 percent after a transitional period, because payroll-tax receipts now pledged to Social Security payouts would shift to funding the new private accounts. Even people who did not choose private accounts would end up with far lower benefits than under present law.

With private accounts, you're in big trouble if you happen to reach retirement age when the market is down, or make bad investments, or live too long. Also, the current system is redistributive: Low-income workers get a higher percentage of their lifetime earnings when they retire than affluent retirees do. But with individual accounts, there's little redistribution except for a very meager minimum benefit, and hence more poverty in old age. Last, this shift would increase the public debt by about $2 trillion -- on top of deficits that every reputable economist considers already dangerously high.

So how can such a bad idea possibly win enactment?

The administration relies on a now-familiar formula for dubious legislation. For starters, grossly misrepresent the real effects. Then make sure the negative consequences don't kick in for years, preferably decades. Finally, torture parliamentary procedure and press skeptical Republicans to the wall. (See the three Bush tax cuts, the escalating deficit budget, and the bogus Medicare drug program.)

Privatization is advertised as allowing people to achieve better returns than under Social Security, by investing in stocks and bonds. Bush promises that people in or near retirement would still get all the benefits under the present formula. Younger people would get less, but would supposedly make up the difference, and more, from new private accounts. The White House message, characteristically, is deceptively simple. First, today's seniors are protected. Second, you should control your own money. Third, even if the government ends up borrowing $2 trillion to finance the transition, that's more fiscally responsible than the present system, which the White House claims has an $11 trillion unfunded liability. Though the White House doesn't advertise this part, its approach reduces the system's liability by shifting risks to individuals.

Note the clever interest-group politics. By promising to protect people over roughly age 60 from any change, Bush hopes to neutralize the most enthusiastic constituency for the current program. He also plays to both the fears and hopes of the young. People in their 20s and 30s are skeptical that Social Security will be there for them in any case, because all the Social Security bashing and hysterical projections about the system going bust have taken their toll. Polling shows that younger voters are dubious about any large institutions delivering for them -- not employers, not government. The young feel they need to make provisions for themselves. So Bush offers Generations X, Y, and Z the option to take the money and run, to put some of their payroll-tax proceeds into accounts they control. Privatization also serves a heavily Republican constituency: Wall Street firms, which relish a new investment stream running into hundreds of billions every year, to fatten fees and perhaps pump up a precarious stock market.

Ideologically, Bush-style conservatives want everyone thinking individualistically, more like investors than citizens. Politically, if they can fragment the Democrats' most beloved social program, they can splinter the Democrats' voting coalition, undercutting both Social Security's present alliance between the poor and the middle class and its intergenerational compact between the young and the old -- and thus the Democrats' role as faithful stewards. During the Clinton era, when there was the prospect of expanding social insurance, Republicans fought to kill any universal health-insurance program, lest younger voters also get the idea that government could actually be useful.

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And yet this signature Bush proposal is vulnerable. Congressional Republicans are anxiously divided into three loose camps, waiting for Bush's actual bill. One group wants to do privatization with a measure of honesty, acknowledging the need for big benefit cuts or tax increases. This includes long-time privatizers such as Arizona Representative Jim Kolbe and key senators such as Budget Chairman Judd Gregg of New Hampshire. Bush's hasty announcement on December 9, pledging no increase in payroll taxes, was an attempt to neutralize the political damage caused by South Carolina Senator Lindsay Graham, who had told a reporter, We need to have everything on the table, including taxes.

A second GOP camp, egged on by Grover Norquist and the anti-tax Club for Growth, hopes to delay benefit cuts (which would have to come eventually) and avoid any tax increases by relying entirely on additional borrowing. That course, however, unnerves fiscal conservatives such as Iowa's Charles Grassley, who chairs the Senate Finance Committee. So GOP legislators would either be voting for a wildly irresponsible increase in federal borrowing or politically unpopular cuts in benefits.

Given all these political risks, a third group, whose leader is Virginia Representative Tom Davis, isn't really keen on privatization at all. Davis, as head of the Republican Congressional Campaign Committee, is part of the House leadership. He speaks for perhaps 30 skeptical rank-and-file House Republicans.

Some in the House leadership were hoping to add some form of privatization to the 2005 budget resolution. But well-placed sources now say that the White House won't be ready and doesn't want Social Security confused in the public mind with the tax cutting that will be in the budget. Bush could unveil a separate bill as early as March.

In the Senate, the filibuster rule allows just 41 senators to block legislation. However, if Democrats are down to relying on a filibuster to beat this idea, they are close to a defeat. The House Democratic leadership believes it needs to win over public opinion with a massive public-education campaign that makes privatization politically unpalatable for many Republicans to support, either because it is fiscally outrageous or because it contains needless benefit cuts (or both).

One irony is that Tom DeLay's redistricting caper got rid of the Republicans' best Democratic ally, Texas Representative Charles Stenholm, who co-sponsored (with Kolbe) an intellectually honest privatization bill. The Kolbe-Stenholm bill would have funded private accounts with steep benefit cuts in conventional Social Security, averaging about 50 percent by 2050. Tellingly, it attracted no other co-sponsors. So unlike in the case of Bush's tax cuts, very few Democratic legislators will be providing bipartisan cover to Republicans.

Another tactical question is whether Democrats need their own alternative bill, as many advocates and academics advise. John Rother, chief legislative tactician for AARP, says, Our consumer research shows great cynicism on the part of young workers about whether Social Security will be there for them. They are susceptible to claims about privatization, if that is the only plan they see. It's not clear, however, that a technical fiscal fix, or even a Democratic bill for add-on private accounts, would provide that reassurance. The House leadership -- Minority Leader Nancy Pelosi and ranking Ways and Means Committee Democrats Charles Rangel and Bob Matsui -- is firmly united on one proposition: Democratic fire needs to focus entirely on the sheer badness of the Bush proposal.

But isn't it irresponsible for Democrats not to propose an alternative? Not in the present legislative and political context. Democrats don't control the government, they have no bargaining leverage, and Bush is not prepared to meet them halfway. If Democrats did offer a responsible plan of their own, it would distract attention from the Bush bill and draw fire for either cutting benefits or raising taxes.

Representative Dave Obey of Wisconsin has a bill, written with the help of former Social Security Commissioner Robert Ball, the program's grand old man. Obey would close the system's true shortfall, mostly by restoring estate taxes on very large estates, partly by shaving the cost-of-living adjustment. But some in the House leadership don't want Obey to even introduce the bill.

As one Democratic tactician observes, the time for Democrats to share the political pain for strengthening Social Security is when the White House gets serious about repairing the current system, not at a time when an ideological assault is masquerading as a fiscal fix. Both parties were able to broker a fiscal rescue in 1983, when a genuinely bipartisan commission, chaired by Alan Greenspan and featuring Democratic leaders Daniel Patrick Moynihan and Robert Ball, negotiated a package that raised the retirement age by two years and increased the payroll tax.

But these are more polarized times. For now, the challenge for opponents of privatization is to raise the visibility of the issue, starting with the widely misunderstood question of Social Security solvency. Much of the mainstream media has accepted an oversimplified story of drastic crisis. In fact, the Congressional Budget Office calculates that the system's 75-year shortfall is just half of 1 percent of the gross domestic product. Modest adjustments, like Obey's, could keep the present benefit system intact indefinitely.

At this writing, AARP, the AFL-CIO, Campaign for America's Future, and other advocacy groups such as the Center on Budget and Policy Priorities are gearing up for a massive organizing drive. AARP's Republican chief executive, Bill Novelli, delivered AARP support to the Bush Medicare bill. This in turn angered many on AARP's board. AARP's lay president, Marie Smith, an African American former Social Security official, is passionately anti-privatization, as is most of the board. AARP plans to put serious resources into this fight, according to Rother.

Likewise, the two largest liberal 527s, the Media Fund and America Coming Together, and their donors are casting about for a post-election role. They put over $200 million into trying to defeat Bush, says one activist. Blowing away his top legislative priority would be a pretty good second best.

Robert Kuttner is co-editor of The American Prospect.

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