The Republicans and the Bush administration may have painted themselves into a serious political corner on the hot-button issue of Social Security. Last December a Social Security Commission appointed by the president reported three possible plans to privatize part of Social Security accounts.
At the time the commission was appointed, conservative think tanks like the Heritage Foundation and the Cato Institute had persuaded leading Republicans that voters liked the idea of "choice" in their retirement planning and that private accounts invested in stocks had great appeal with younger voters.
But after a swooning stock market and the Enron scandal, Republican congressmen who have to run in swing districts know better. The GOP's rank and file is refusing to walk this plank. The other day, U.S. Representative Clay Shaw of Florida, a leading advocate of Social Security privatization, denied that he supports Social Security privatization. The House leadership has even refused to put the president's plan into a bill.
William Kristol, the conservative strategist and Weekly Standard editor, told me the other day that this November the Republicans may have the worse of both worlds on this issue. They are sufficiently associated with privatization to give the Democrats a terrific club but so divided on it that they will get little positive for their pains.
Now two leading economists are out with an important report that is sure to figure in this fall's debates. MIT economist Peter Diamond and Peter Orszag of the Brookings Institution have calculated the impact of the Bush Social Security Commission's plans.
The report was sponsored by the Century Foundation and the Center on Budget and Policy Priorities. Diamond is president-elect of the American Economic Association. Orszag is a leading Social Security scholar.
For starters, they conclude, the partial privatization proposed by the commission would cost trillions of dollars in general government revenues as the price of keeping the Social Security System intact.
Younger retirees, even those who did not opt for private accounts, would lose a big chunk of the Social Security benefits they would get under current law.
For example, someone retiring 30 years from now would lose 17 percent of his or her benefits. Whether private accounts would make up the difference depends on the stock market.
Two years ago, when conservatives were writing books with giddy titles like Dow: 36,000, privatization seemingly had great political appeal. Now, voters are more worried about Dow 3,600.
Someone who had invested Social Security assets in the stock market in early 2000 would be out a lot of money today. Enron and the other Enrons cast serious doubt on 401(k) plans as a worker's entire retirement basket.
The Republicans are also vulnerable because the House has passed legislation, supposedly to prevent future Enrons, that actually makes it easier for corporate executives to have one retirement plan for high-level people and a different one for ordinary employees. This flies in the face of Bush's declaration, post-Enron, that "the shop floor" should get the same retirement treatment as "the top floor."
Count on Democrats to make a big deal of all this come November. The liberal Campaign for America's Future has organized an "Alliance for Social Security," which will be taking a pledge card into swing congressional districts beginning in July, asking congressional candidates to pledge that they will not support Social Security privatization.
What a difference two years makes. Not so long ago, politicians in both parties were flirting with privatization. President Clinton was entertaining the idea as part of this third-way philosophy until the Lewinsky scandal got in the way. Congressional liberals insisted as part of the price of sticking with Clinton that he abandon all thoughts of privatizing Social Security. Bedfellows make strange politics.
Two years ago pundits were declaring that Social Security was no longer the third rail of American politics and accusing liberals who questioned whether Republicans could be trusted with the system's solvency as "demogoguing Social Security."
Well, one large tax cut, one stock market correction, and one Enron scandal later, we are now back to the future. As more research on the likely effects of even partial privatization keeps appearing, Republicans will keep running away from their own issue.
This year, with a state of seemingly permanent warfare and an electorate that rallies behind its commander in chief, the Democrats may not have much. But they definitely have Social Security, and they will make the most of it. For this they can thank George W. Bush.
