For six decades, Democrats have been proud defenders of America's most popular government program, Social Security. But the debate is now becoming so muddled that when the dust settles, Social Security may well end up partly privatizedwith George W. Bush getting credit for saving it.
How could this have happened?
Twenty years ago, it became clear that Social Security needed adjustment because people were living longer. Unlike a private retirement account, Social Security keeps sending the checks as long as you live.
In 1983, Congress slightly raised both taxes and the retirement age. It also adjusted the cost-of-living formula.
These changes deliberately caused Social Security to take in more money than it paid out, through about 2013. This was done to bank reserves so that the system could keep paying full benefits when the baby-boom generation retires. Then the system will need to tap those reserves. These modifications will keepthe system solvent until the 2030s.
What then? There are only four choices. Trim benefits, either directly or by postponing the retirement age; raise taxes; hopefor higher economic growth; or invest Social Security reserves in away that increases the system's income.
Conservatives are using Social Security's need for more money 35 years hence to argue for partial privatization now. Supposedly, by putting some of the payroll tax receipts that finance Social Security into personal retirement accounts, rates ofreturn will be higher. Then, Social Security checks could besignificantly cut but retirees could make up the difference fromprivate accounts.
But this plan spends the same money twice. Payroll tax revenues now coming into the system finance Social Security checks for current retirees. Unless we stop paying those checks,diverting payroll taxes to new private accounts would cost thegovernment an extra trillion dollars. It would make Social Security'ssolvency worse, not better.
Private accounts also leave individual retirees vulnerable to the ups and downs of the stock market, and to bad personal investment decisions. And unlike conventional Social Security, which pays benefits as long as you live, private accounts can run out.
The Bush approach is so bad that opposing it should be a political slam dunk for Democrats. But...no.
For one thing, a few high-profile Democrats are willing to experiment with private accounts. Former Senator Pat Moynihan, never one to shun the spotlight, has happily and publicly given President Bush bipartisan cover.
For another, Candidate Al Gore got obsessed with what he called the "lock-box" (Here you really need to stay awake, and not just because it's Gore, but bear with me.)
Gore's idea was that the current annual surpluses coming into the Social Security accounts should be used to pay down the national debt. Then, when Social Security started needing more money in a couple of decades, government could borrow back the money to pay Social Security checks.
Politically, Gore's strategists thought that by putting the Social Security reserves off budget, and forcing George W. Bush to take the "lock-box" pledge, they would make it impossible for Bush to eat into the surplus with a large tax cut. Youcan see how well that tactic worked.
Worse, Gore's actual scheme was not a lock-box at all, but an accounting gimmick. If the idea was to segregate Social Security surplus funds and invest them separately, that could have been done. But that's not what Gore offered. Wall Street gets nervous about large government reserves being invested in securities. So instead, Gore proposed using Social Security surpluses to retire government debt and just calling it a lock-box.
In any case, when Bush's tax cut proved much too big, Democrats could only rail that he was threatening Social Security. But just enough Democrats had voted for the tax cut that they shared the blame; the Republicans could insist, correctly, there was never any lock-box. And nobody understood what a lockbox was, anyway. Thus, Bush's overreach yielded only meager benefit for Democrats.
So -- how to save Social Security, politically and substantively? One straightforward idea voters would grasp: Repeal the tax cut, reclaim the surplus, and earmark some of it for the Social Security reserves. A portion of those reserves could be invested by the Social Security trustees in blue chip stocks and bonds and income would compound for 35 years. That would increase the system's rate of return and income, but without leaving any individual vulnerable.
The privatizers are playing for keeps. Social Security's champions need something better than a pretend lock-box.
