President Bush was right to defer at least until autumn any serious debate on overhauling Social Security. Right now, Washington’s agog over tax cuts, Star Wars and T-ball on the White House lawn, and such a sober issue as retirement wouldn’t get the spotlight it deserves.
But Bush should not harbor the illusion that deferring this debate makes it any easier–particularly as it likely will run smack into 2002 mid-term campaigns. Nothing like a pending election to make pols timid. Nor should Bush assume that stacking his Presidential Social Security Commission with 16 people already inclined toward some measure of privatizing the system means that proposal is a cinch.
The president directed his commission, which will be chaired by former New York Sen. Daniel Patrick Moynihan and AOL/Time Warner executive Dick Parsons, to come up with a way to offer personal savings accounts to younger workers who want them.
It’s a goal this nation can, and should, comfortably pursue. More than half of the population has experience with stock and bond investing, either directly or through mutual funds–and in both up markets and down. Many Americans want more control over planning and investing for their own retirements. They should have it.
But the rules must be clear and the trade-offs and costs must be spelled out. Who will control the new savings accounts? Who will decide what is an appropriate investment? Will those who choose to invest some of their payroll taxes in private accounts be subject to reduced benefits? How will the nation pay the costs–estimated to be at least $1 trillion–of transition from the old system to the new?
Most important, Bush must convince Americans the nation can remake Social Security–allowing citizens to invest part of their payroll taxes in stocks and bonds–without endangering the 66-year-old social contract that underpins it. Too many Americans have knee-jerk fears that changing Social Security will hurt them. Making change acceptable will require the full attention of this president, Congress and a tuned-in public.
Although much of the talk has been about rates of return and investment vehicles, Social Security will always be more than just another investment. It is a safety net that makes sure Americans don’t age in poverty.
In announcing his panel, Bush seemed to understand Social Security’s special place in society. He properly called the program “one of the greatest achievements of the American government and one of the deepest commitments to the American people.” No other government program in America directly touches the lives of almost every citizen the way Social Security does. For most of their lives, Americans are either paying into the program or drawing from it.
Yet Bush also said, “Today, young workers who pay into Social Security might as well be saving their money in their mattresses.” That’s also true. A big reason partial privatization is on the radar screen is that the return on Social Security assets is below the rate of inflation.
In future decades there will be fewer of those young workers to support the needs of a mushrooming number of retirees. Given the growing imbalance between workers paying into the system and retirees drawing on it, Social Security as presently structured at some point this century won’t be able to keep all the promises it is making.
The risks and opportunities for Bush of attempting to remake this bedrock social contract are huge. If he can pull it off, he’ll have no greater legacy in domestic policy. If he fails, Social Security will remain in crisis mode.
The clock is ticking. The first Boomers turn 65 in ten years, and there are 78 million Boomers in the pipeline. The danger doesn’t lie in discussing bold ways to revitalize Social Security. The danger lies in doing nothing at all.
