The epic social security battle of 2005 will boil down to two questions: which side will do a more effective job getting its message out to voters, and which party can enforce the tighter discipline in Congress. Seemingly, the circumstances favor the Republicans, who have the bully pulpit of the White House, almost inﬁnite ﬁnancial resources from corporate and ideological allies, and majorities in both chambers. But Social Security privatization is such a ﬁscal stretch that any of the several ways of bringing it about must alienate one Republican faction or another. It remains to be seen whether the Bush White House can bridge these schisms.
Among Democrats, there is strong party unity in the House. The biggest risk is the defection of several wavering centrist senators. These legislators view themselves as nontraditional, post–New Deal Democrats, practical problem solvers, and good bipartisans. The short list includes Senators Tom Carper, Kent Conrad, Ben Nelson, Joe Lieberman, Blanche Lincoln, and Evan Bayh. It takes 41 votes to sustain a ﬁlibuster, and the Democrats have only 45 senators, so even a handful of defections would be fatal. So far, Max Baucus, the ranking Democrat on the Senate Finance Committee and usually the most worrisome defector on such issues, is holding fast.
Republican Senator Lindsey Graham of South Carolina has been actively courting these and other Democratic senators. He even succeeded in getting Conrad to write a joint op-ed piece in USA Today on December 22, implicitly opening the door to privatization. The two senators wrote, “To address Social Security's funding challenges, all options should be on the table for discussion.”
But the problem with this premise is that privatization per se makes Social Security's ﬁnances signiﬁcantly worse. And that is the rock on which the Republican privatization coalition may founder.
The Bush White House and key GOP legislators are even divided over whether the White House should send legislation to the Hill or let Congress take the lead. Key House Republicans feel they would have more cover to vote for risky, unpopular changes if it's the president's bill. On the Senate side, Chuck Grassley, chairman of the Finance Committee, like Graham, would prefer to have the White House send Congress a set of principles and let the leadership work out the actual legislation in order to attract some crucial Democratic support. No bill is expected until late February.
For privatizers, the big problem is where to get the money. At bottom, there are only three possible ways.
1. Borrow it. This is the most expedient approach, but plunging the federal budget signiﬁcantly deeper into debt alienates Wall Street Republicans as well as ﬁscally responsible ones in the heartland. The prospect of $2 trillion in additional borrowing, unlike the rest of the privatization issue, is easy to grasp and has generated lots of unfavorable editorial and news coverage. It also gives the lie to the idea that privatization is any kind of solution to Social Security's present modest shortfall. Graham, as well as several House Republican deﬁcit hawks, opposes borrowing that much additional money. A widely circulated White House memo by Peter Wehner, an aide to Karl Rove, warned of “an economic chain-reaction: the markets go south, interest rates go up, and the economy stalls out.”
2. Cut Beneﬁts. In early January, word leaked out that the White House was very likely to include in its bill a change in the annual cost-of-living adjustment. Though seemingly an innocent technical change from “wage indexing” to “price indexing,” the result would be a drastic cut in beneﬁts over time -- not just for those who chose to put some payroll-tax receipts into individual accounts but for all retirees who stayed with traditional Social Security.
Under present law, once you retire, your beneﬁts are adjusted every year for inﬂation. Wages, however, increase faster than prices -- that's the essence of a growing economy. So during your working lifetime, prior to retirement, your future beneﬁt schedule is gradually adjusted upward as the economy grows. Under the Bush plan, such wage adjustments would be scrapped, with only price adjustments preserved. The effect over time would be to drastically reduce average “replacement ratios,” one's Social Security beneﬁts relative to one's lifetime earnings. By 2065, according to an analysis of the White House plan done by The New York Times, the annual beneﬁt for a typical worker (in today's dollars) would decline from $26,400 under current law to just $14,600.
This idea appalled several Republican strategists and brought some splits into the open. Former House Speaker Newt Gingrich complained to The Wall Street Journal, “I can't imagine how you can sell a beneﬁt cut in a partisan environment.” Former Representative Jack Kemp, who has organized a new group to push privatization, also strenuously objected.
3. Raise Taxes. Graham broke with the White House when he declared that everything should be on the table, including a lifting of the cap on the income subject to payroll taxes, currently $87,000. Graham spoke of taxing incomes as high as $160,000. As AARP policy chief John Rother observes, “Raising the cap is the one approach that wins majority support in public-opinion polls, but it's the one that Republicans are least likely to vote for.” This idea has long been a favorite of many Democrats, who see it as an easy and equitable way of getting more money into the Social Security system. Graham's gambit is shrewd politics. He uses this most un-Republican willingness to raise taxes on the upper-middle class as the bait to attract Democratic centrists to the cause of privatization (which of course does nothing for the system's solvency unless you also slash beneﬁts).
Though President Bush explicitly ruled out Graham's approach, many observers believe that the White House is not unhappy with Graham's ostensible freelancing. Bush can still insist that he opposes raising taxes; but if Congress decides to increase the payroll tax and that's the price of inveigling a few swing Democrats into throwing away Franklin Roosevelt's crown jewel, it's worth it.
Another strategist I spoke with imagines the House passing a bill that uses borrowing to pay for privatization. Anxious House Republicans are told not to worry, that it will be ﬁxed in conference. Then the Senate adds a Graham-style increase in the payroll tax. This brings along a few New Democrats to the privatization camp, defeats a ﬁlibuster, and gives the whole affair a bipartisan gloss. In conference committee, some House members grumble about the payroll-tax increase, but the White House and Majority Leader Tom DeLay signal that they should go along, and the deal is done.
But even if this endgame seems a politically elegant solution, the fact remains that the legislation ﬁrst has to pass the House (as all revenue measures must, under the Constitution) and any of the three approaches would likely lose some Republicans. That's why privatization is more difﬁcult politically than any of Bush's legislative goals to date.
One thing democrats lack is a national spokesperson. Even admirers of Nevada's Harry Reid, the new Senate minority leader, do not consider him telegenic. And in the House, Nancy Pelosi has been far more effective at holding together her caucus than at being a public ﬁgure. “How about Bill Clinton?” proposes one advocate.
The unexpected death of Representative Bob Matsui on January 1 is viewed as a real setback. Matsui, the ranking Democrat on the Ways and Means Social Security subcommittee, also chaired the Democratic Congressional Campaign Committee. He uniquely combined three strengths: He was a passionate defender of the existing system, a genuine expert on its technical details, and a widely respected and trusted colleague.
The next ranking Democrat on the subcommittee, Ben Cardin of Maryland, is a supporter of Social Security, but he is given to bipartisan compromises on retirement policy. Cardin has worked hand in glove on several Wall Street–friendly bills with Republican Adam Putnam of Florida. “Matsui was partisan, smart, and tough,” says one key strategist. “Cardin is not a draw-a-line-in-the-sand kind of guy.” However, subcommittee posts are awarded by seniority on the full committee, and insiders expect the ranking Democrat job ultimately to go to Sandy Levin of Michigan, a staunch liberal.
In the Senate, Reid is ﬁrmly committed to blocking privatization. But there is less party discipline in the Senate caucus, and Reid must contend with several possible waverers, each with his own idiosyncratic motivations.
Kent Conrad, for instance, is a progressive on most issues. But like many prairie-state Democrats, he is a true ﬁscal conservative. Though Social Security's actual long-term ﬁnances get better every time the Congressional Budget Ofﬁce recalculates the economic projections, Conrad is one of those who fear that the system is unsustainable. It is this concern that Graham plays like a violin. Here, another recent Democratic loss could be telling. Former Minority Leader Tom Daschle, ousted in a razor-thin South Dakota election last November, was close to fellow Dakotan Conrad and might well have been more effective in holding Conrad and other wobbly members of the caucus than Reid can be.
Carper, before his election to the Senate, was a popular centrist governor. Delaware used to send mostly Republicans to the Senate. Carper has attended meetings with Graham and with Grassley, and likes bipartisan solutions congenial to business. Bayh, likewise, is very much a New Democrat. However, he has presidential aspirations, and it is hard to imagine him getting nominated having enabled a Bush victory to wreck Social Security.
Baucus gives liberals hives because of his frequent defections on Republican tax cuts, but is said to be solid on Social Security. Having annoyed his colleagues by supporting Bush ﬁrst on tax cuts and then on a ﬂawed Medicare drug program, Baucus has given his word to Reid that he won't cave on Social Security.
Two other Democrats from swing states who like to support the president when they can are Ben Nelson of Nebraska and Blanche Lincoln of Arkansas. Nelson must face his voters in 2006. However, on this issue, unlike on tax cuts and Medicare drugs, it's not clear that voters would punish Democrats for defending Social Security, and it is Republicans who risk an unpopular vote.
Elsewhere in this special report, Roger Hickey and John Marttila address the grass-roots battle. It promises to be a doozy. Expect the GOP to launch the usual front groups with happy-sounding names, trumpeting a future in which Americans of modest means enjoy the security and freedom of individual retirement accounts. AARP has already come forward with its ﬁrst round of ads, emphasizing that privatization is a risky gamble. Future AARP ads will address three other themes: the fact that the system is not really in serious crisis, the likelihood of drastic beneﬁt cuts, and the risk of massive new public debt.
This is really two battles -- one for individual wavering Republican and Democratic legislators, who may fear the retribution of constituents in 2006; the other for media deﬁnition. Legislators will be punished (or rewarded) for their vote only to the extent that the story gets out. Thus far, Bush has not gotten particularly friendly press on this project. The media have reported awkward public splits in the Republican coalition and have begun to seriously question Bush's numbers.
But never underestimate the White House spin machine. To a great degree, Bush's success will depend on whether the press is willing to revise the two great media clichés that have dominated Social Security coverage for over a decade: the almost unquestioned premise that the system is in severe crisis and the idea that bipartisanship is virtuous per se. (Why don't the two parties just embrace the public interest, make some hard choices, and get this ﬁxed?) As the press takes a closer look, however, the coverage should appreciate that, in this case, “bipartisanship” would be nothing more than cover for a phony ﬁx.
What is the logical progressive position? By restoring the pre-Bush tax schedule on the top 1 percent of taxpayers, we could ﬁx Social Security's very modest shortfall and not tamper with beneﬁts. By extending it down another 1 percent, we could subsidize individual accounts as a supplement to Social Security rather than a raid on it. “People don't believe that the Social Security shortfall is so modest in relation to the tax cuts,” says Bob Greenstein of the Center on Budget and Policy Priorities. Whether people grasp that reality will be crucial to the fate of Social Security.
Mercifully, the Democratic Leadership Council (DLC), which has ﬂirted with partial privatization in the past, is refusing to give Bush bipartisan cover this time. The DLC, says founder and CEO Al From, would prefer “add-on” accounts. This would give Democrats something afﬁrmative to support, keeping with the “ownership society” theme without wrecking Social Security. Gene Sperling, former economic adviser to President Clinton and to the Kerry campaign, is also promoting this approach.
In the end, Republicans need several Democratic defectors, less to break a threatened Senate ﬁlibuster than to provide the bipartisan cover that would make it safe for Republicans to support privatization. At this writing, despite a few wobbly Democrats, that seems less than an even bet.
Robert Kuttner is co-editor of The American Prospect.
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