Body Politics

President Bush insisted that we could afford both
a tax cut and the shoring up of Social Security. He was dead wrong. So the
Democrats could hardly pick a better set of galvanizing issues. But as Robert
Borosage points out in "The Austerity Trap" (see page 13), many Democrats are
taking surplus-worship to such an extreme that they are in danger of losing their
raison d'ĂȘtre as a party.

This odd condition reflects a collision of two trends. First, the
Republicans are genuinely vulnerable on the tax cut and on Social Security. But
second, conservative Democrats are determined to expunge the Democrats' legacy as
the party of "tax and spend." The trouble is, the Democrats' signature programs
are nothing if not tax and spend. Social Security raises trillions of dollars in
payroll taxes and spends the money on secure retirement. Medicare, likewise, is
tax and spend. So is public education.

As a party, you can't make your centerpiece the defense of Social
Security and Medicare, much less the addition of prescription-drug benefits or
enriched child-care programs if you use "tax and spend" as an epithet.
Surplus-worship makes it even harder to remain the party of public improvement.
Unfortunately, the party is sorely divided. One-third of the House and Senate
Democratic caucus repudiates tax and spend while equating surplus with
motherhood. Two-thirds want to fight as traditional Democrats. The compromise
road currently being traveled offers a jumble of mixed signals.

Social Security is the emblematic case. It has long been America's
most cherished, most expensive, most redistributive, and most successful social
program. It reminds voters that government programs are necessary to temper the
vicissitudes of markets and that Democrats are the stewards of social insurance.
It cements a coalition of poor and middle- class voters.

Policy makers face two distinct challenges: how to keep Social Security
solvent for the long haul, and how to think about budget politics short-term. The
two matters need to be clarified and disentangled. Unfortunately, these issues
are becoming more muddled daily, with Republicans as perpetrators and Democrats
as accessories after the fact.

The issue of Social Security's long-term viability has been deliberately
obfuscated by the Bush administration. Supposedly, we can solve the problem of
Social Security finance by channeling some of the payroll tax to new personal
retirement accounts. Social Security checks would eventually be smaller, but the
private accounts, invested in stocks or bonds, would more than make up the
difference. But this approach would spend the same money twice, since it would
dip into tax receipts that finance current Social Security checks. It would also
leave individuals vulnerable to the vagaries of markets. Moreover, Social
Security offers a variety of benefits not provided by personal accounts. The
system keeps paying checks as long as you live. It provides assistance in cases
of disability or the death of a breadwinner. And it gives a disproportionately
generous benefit to lower-income earners to alleviate poverty in old age.

All of this should make defense of the Social Security system an
easy winner for liberals and Democrats. But the issue of what kind of Social
Security system to have and how to finance it has become hopelessly enmeshed with
short-term budget politics. Without a better game plan, Democrats could lose both
fights.

When the federal budget surplus became embarrassingly large in 1998 and
1999, Bill Clinton's strategy was to earmark all of the unspent funds for Social
Security. The object was to identify Democrats with Social Security and head off
a Republican tax cut. Oops. By the 2000 presidential campaign, Al Gore's
"lockbox" seemed to mean that surplus payroll-tax receipts would be strictly
reserved for Social Security. But what it actually meant was that the Social
Security surplus would pay down the national debt.

The lockbox strategy had four flaws: First, surplus-as-virtue made it
impossible for Democrats to address national needs with social spending that
voters actually supported. Second, it put the Democrats on the wrong side of
fiscal policy, arguing for surpluses even in a recession. Third, the lockbox,
which only accountants really understood, was a feeble rejoinder to Bush's
privatization scheme. And fourth, the strategy ducked the real question of how to
fix Social Security.

Potentially, the Democrats should be eating Bush's lunch on all these issues.
But it makes no sense to criticize the tax cut unless you also argue for its
repeal. Too few Democrats are willing to do that. Democrats should also be clear
that economic stimulus in a downturn and long-term public investment are both
better policies than paying down the national debt. And they should be engaging
the privatization debate head-on.

Finally, we need a real national conversation about shoring up the public
Social Security system. Without some adjustments, benefits will need to be
trimmed in three or four decades. If the Bush tax cut were repealed, some of the
surplus could be invested in stocks and bonds earmarked for the Social Security
system--not a hypothetical lockbox but a real portfolio of investments that could
compound for decades before being drawn down to meet the system's needs. We
should also consider higher tax rates for people in the upper income brackets to
guarantee a secure retirement for the rest of us.

Tax and spend remains an honorable philosophy and a good politics. The real
debate is about the right taxing and the right spending.

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