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Archive for Monday, January 3, 2005

Showdown looms over Social Security

January 3, 2005

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New year, new questions, new challenges, new debates.

The conflict in Iraq hasn't ended, nor the terrorist threat. They both may be with us for much of the remainder of the decade. But what is remarkable is how many new matters face the new Congress and the new administration of President Bush. This year presents not so much a fresh start as a fresh set of issues. The ironic thing is that all these issues are embedded -- the favorite word of the Bush era -- in the emerging Social Security showdown.

Indeed, this new year feels a lot like the beginning of Ronald Reagan's second term, when the president pushed the Congress to tackle a major overhaul of the tax system and, in so doing, forced politicians and commentators alike to examine the assumptions that animate their political views. It was, moreover, Reagan's most enduring domestic accomplishment -- a notion that President Bush and his advisers surely have recognized and are seeking to replicate.

Bush is determined

The president, possessed by visions of an "ownership society," is determined to overhaul Social Security, the hardy legacy of the New Deal that has transformed the way Americans think about financing their retirement. "One of my strong beliefs is that all public policy, to the extent possible, ought to encourage ownership in America," the president said at his economic summit in December. He said he thought it would be "healthy for our system for people to own and manage their own retirement account," adding: "People will ask more questions about fiscal responsibility than ever before."

Social Security began as a retirement supplement but, in our time, has taken on the aura of a pension -- which, though unrecognized, is the crux of the problem today.

If, of course, there is a problem. The first part of the Social Security debate is to decide whether there is a crisis or not. The Republicans say there is. The Democrats say there isn't (at least for another couple of decades). Politicians don't usually fight about problems decades in the future, so in a way all this talk about whether the system falls into hopelessness in 2042 is a hopeful sign.

But don't -- not for a moment -- think this is a selfless exercise on either side, or a real effort to avoid the crisis of 2042, so far away that even Ben Roethlisberger, who presumably won't need to depend on Social Security, still won't be old enough to be eligible. It's not.

The Democrats want to "preserve" the current system because they repeatedly have found political utility (and gobs of campaign money) in being the guardians of the security of the aged. The Republicans want to "save" Social Security because money in the so-called trust funds often is diverted to other government spending, thereby fueling the size and prerogatives of the central government.

Neither side fully tells the truth. But neither denies that at the heart of this is an important philosophical difference that separates the two parties: one party that is more comfortable with market solutions to social problems and another that is more comfortable with government stewardship of social programs. Or, put another way, a clash for the ages between two competing notions: personal responsibility and public responsibility.

An important debate

That's why this debate is so vital. It gets to the heart of colliding ideas of the role of government and the efficiency of the markets, which if you think of it are the most important questions in our political and economic system.

No politician can afford to be neutral in this battle, which is why compromise has been so hard to come by. Nor can any politician afford to be neglectful of the seniors whose security -- there's that word again -- can be enhanced or jeopardized by any "reform" that manages to pass through the lobby labyrinth of Washington.

The president's proposal to allow individuals to invest the money that the government now stows in a phony trust fund brings the issue to its philosophical tipping point in a way that nothing has in the 70 years of its existence. (Note to those who actually thought Vice President Al Gore and Gov. George W. Bush were conducting a serious presidential campaign in 2000: There is no lock box.)

This Social Security issue is so captivating because it includes, deep inside, so many other interesting issues. What is the proper retirement age for the baby boomers (consensus answer from non-boomers: Now would be just about right)? Should there be new age adjustments since people are living longer and are more vigorous in their 60s than ever before? Is the Social Security tax system, which limits contributions to the first $87,900 of income, a peculiarly regressive form of taxation? If the nation were to decide to permit individuals to invest part of the 12.4 percent they and their employers contribute to Social Security, who would reap the commissions? And how much of that retirement money should be placed in the market -- all of it, a tiny fraction of it, or, as Republican Sen. John E. Sununu of New Hampshire and Rep. Paul Ryan of Wisconsin are proposing, half of it?

Some more: Is the current system more efficient than the idea being floated by the president, which, according to Bush critics, could make individuals pay high administrative costs? Will this plan, as some of its opponents argue, transform Social Security into a program mainly for the poor and thereby undermine the broad base of support it has today?

Ties to market

I wonder if anyone else has noticed that talk of overhauling Social Security blossomed just before Christmas, when the Dow Jones Industrial Average hit its highest level in 3 1/2 years. That prompts my final question, which I believe will have to be answered once lawmakers begin getting their fingernails dirty with the details of private investment of Social Security funds: Why does enthusiasm for this plan seem to peak at times when the markets are robust and to disappear from public consideration when the markets are in distress?

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