President Bush insisted that we could afford botha tax cut and the shoring up of Social Security. He was dead wrong. So theDemocrats could hardly pick a better set of galvanizing issues. But as RobertBorosage points out in "The Austerity Trap" (see page 13), many Democrats aretaking surplus-worship to such an extreme that they are in danger of losing theirraison d'être as a party.
This odd condition reflects a collision of two trends. First, theRepublicans are genuinely vulnerable on the tax cut and on Social Security. Butsecond, conservative Democrats are determined to expunge the Democrats' legacy asthe party of "tax and spend." The trouble is, the Democrats' signature programsare nothing if not tax and spend. Social Security raises trillions of dollars inpayroll taxes and spends the money on secure retirement. Medicare, likewise, istax and spend. So is public education.
As a party, you can't make your centerpiece the defense of SocialSecurity and Medicare, much less the addition of prescription-drug benefits orenriched 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 SenateDemocratic caucus repudiates tax and spend while equating surplus withmotherhood. Two-thirds want to fight as traditional Democrats. The compromiseroad currently being traveled offers a jumble of mixed signals.
Social Security is the emblematic case. It has long been America'smost cherished, most expensive, most redistributive, and most successful socialprogram. It reminds voters that government programs are necessary to temper thevicissitudes 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 Securitysolvent for the long haul, and how to think about budget politics short-term. Thetwo matters need to be clarified and disentangled. Unfortunately, these issuesare becoming more muddled daily, with Republicans as perpetrators and Democratsas accessories after the fact.
The issue of Social Security's long-term viability has been deliberatelyobfuscated by the Bush administration. Supposedly, we can solve the problem ofSocial Security finance by channeling some of the payroll tax to new personalretirement accounts. Social Security checks would eventually be smaller, but theprivate accounts, invested in stocks or bonds, would more than make up thedifference. But this approach would spend the same money twice, since it woulddip into tax receipts that finance current Social Security checks. It would alsoleave individuals vulnerable to the vagaries of markets. Moreover, SocialSecurity offers a variety of benefits not provided by personal accounts. Thesystem keeps paying checks as long as you live. It provides assistance in casesof disability or the death of a breadwinner. And it gives a disproportionatelygenerous benefit to lower-income earners to alleviate poverty in old age.
All of this should make defense of the Social Security system aneasy winner for liberals and Democrats. But the issue of what kind of SocialSecurity system to have and how to finance it has become hopelessly enmeshed withshort-term budget politics. Without a better game plan, Democrats could lose bothfights.
When the federal budget surplus became embarrassingly large in 1998 and1999, Bill Clinton's strategy was to earmark all of the unspent funds for SocialSecurity. The object was to identify Democrats with Social Security and head offa Republican tax cut. Oops. By the 2000 presidential campaign, Al Gore's"lockbox" seemed to mean that surplus payroll-tax receipts would be strictlyreserved for Social Security. But what it actually meant was that the SocialSecurity surplus would pay down the national debt.
The lockbox strategy had four flaws: First, surplus-as-virtue made itimpossible for Democrats to address national needs with social spending thatvoters actually supported. Second, it put the Democrats on the wrong side offiscal policy, arguing for surpluses even in a recession. Third, the lockbox,which only accountants really understood, was a feeble rejoinder to Bush'sprivatization scheme. And fourth, the strategy ducked the real question of how tofix 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 itsrepeal. Too few Democrats are willing to do that. Democrats should also be clearthat economic stimulus in a downturn and long-term public investment are bothbetter policies than paying down the national debt. And they should be engagingthe privatization debate head-on.
Finally, we need a real national conversation about shoring up the publicSocial Security system. Without some adjustments, benefits will need to betrimmed in three or four decades. If the Bush tax cut were repealed, some of thesurplus could be invested in stocks and bonds earmarked for the Social Securitysystem--not a hypothetical lockbox but a real portfolio of investments that couldcompound for decades before being drawn down to meet the system's needs. Weshould also consider higher tax rates for people in the upper income brackets toguarantee a secure retirement for the rest of us.
Tax and spend remains an honorable philosophy and a good politics. The realdebate is about the right taxing and the right spending.
