Who's Who In the Social Security Debate

One of my favorite films is Stanley Kubrick's "Dr. Strangelove, Or, How I Learned To Stop Worrying And Love The Bomb" (1964). The final scene — Slim Pickens as a B-52 pilot riding an H-Bomb like a bareback bronc — is the blackest humor. The audience laughs as the world is destroyed by the Soviet "Doomsday Machine." Quite funny. Nuclear holocaust. The analysis of the impending Social Security battle is quality black humor. I laughed out loud as I contemplated a public policy trainwreck. If this is (fair & balanced) irony, so be it.

[x The New Republic]
A GUIDE TO THE SOCIAL SECURITY PLAYERS: Expert Analysis
by Reihan Salam

Social Security is going to volcanically erupt--immediately! So says President Bush. Bush's opponents, meanwhile, are convinced that his risky Social Security scheme will lead to hordes of elderly urchins rooting through trashcans up and down your suburban cul-de-sac. Not unlike wild badgers, they will be ravenous, cranky, and ready to slash you with overlong fingernails.

Either way, friends, you're going to get burned--or slashed. But which will it be? Should you invest in a personal jetpack that will allow you to escape the molten fiscal lava escaping from the volcanic maw of Social Security's coming collapse--or a chainmail tracksuit protecting you top-to-toe from savage undernourished oldsters hopped up on prune juice and expired meds? That depends which of the pundits and policy wonks and pressure groups and politicians you trust.

So the interest of distracting you from the crucial issues at hand, we now present you with TNR Online's Guide to the Social Security Players, a not-so-comprehensive characterological assessment of the deranged madmen who hold a vise-like grip on your future. The crux of the debate, very simply, is this: To what extent should we socialize risk? Many conservatives and libertarians want to move away from a social insurance model towards a mandatory savings model designed to encourage greater self-reliance. Self-reliance, of course, means having workers take on more risk. Liberals, with a handful of exceptions, are trying to preserve and strengthen the social insurance model, arguing that workers are exposed to enough risk as it is. You can find all of our players somewhere along this spectrum. (Except when you can't.)

The White House

Without President Bush, would we be debating dramatic revisions to Social Security? It's very unlikely. Bush has a long record of supporting partial privatization, and he's framed it as nothing less than a moral imperative. He's serious. You can tell because he uses his "serious face" when discussing the issue.

Thus far, Bush has been cautious in his public pronouncements. Key advisors, including OMB director Joshua Bolten, have floated trial balloons in an effort to gauge public opinion. The White House has explicitly committed itself to a few key design principles, among them that current retirees and near-retirees will be untouched; payroll taxes will not be raised, and neither will the contribution ceiling (though there's some wiggle room on this); and voluntary personal accounts will play a significant role. The administration is said to be interested in minimizing transition costs by moving from wage indexing to price indexing--in the interests of fiscal sobriety, uncharacteristically enough. Though applauded by fiscal conservatives, this would, over time, sharply reduce the proportion of income replaced by Social Security after retirement. That is, it would be viewed as a steep cut in benefits. Otherwise, the White House professes an open mind on the nitty-gritty details, giving our lesser players some room to maneuver.

Speculation has focused on "Option 2," the second of three options presented by President Bush's 2001 Commission to Strengthen Social Security. Option 2 would allow workers to divert roughly one-third of the payroll tax to personal accounts, establish a minimum benefit equivalent to 120 percent of the poverty line, and index benefits to prices, not wages. Options 1 and 3 involve smaller personal accounts and different changes to growth rates in the traditional benefit.

"Option 4," using the Social Security Trust Fund to build a manned interstellar craft in the hopes of colonizing distant earth-like planets with retirees, was edited out of the final report, as were the deeply controversial "Option 5," which involved placing all retirees in a state of suspended animation until the perfection of an ethanol-based formula for reversing the aging process, and "Option 6," which involved putting retirees to work in an ANWR-based theme park populated primarily by reanimated zombie dinosaurs. (Think Cocoon meets Jurassic Park meets 28 Days Later--boffo box office!)

Already, Bush's effort to overhaul Social Security is attracting criticism from congressional Republicans, particularly those from swing districts. Even so, he's charging ahead. Bush sees partial privatization as a means of cementing a Republican majority. Historically, proposals to overhaul Social Security have been met with ferocious opposition--they don't call it the "third rail" of American politics for nothing. Yet Republican candidates have been raising the prospect of private accounts drawn from Social Security contributions for years now with relative political success. Rather than drive voters to the Democrats, White House strategists seem to believe that private accounts will attract new voters to the Republicans, particularly younger voters who are now forming the political allegiances that will last a lifetime.

The Free-Lunchers

Newt Gingrich. With a new book in tow and vague murmurings over a possible presidential run in 2008, there's no longer any doubt that Newt Gingrich is back. And what better way to reestablish oneself as a serious contender than to stake out a bold and provocative stance on the Social Security debate? Among the reformers, Gingrich is best described as leader of the "jihad wing," with an unmatched thirst for private accounts coupled with zealous opposition to benefit cuts of any kind. Along with Jack Kemp, Gingrich has been beating the drum for the reform proposal put forth by Wisconsin Representative Paul Ryan and New Hampshire Senator John Sununu.

Paul Ryan. The Great White Hope of the Club for Growth, Ryan has charisma and ideological commitment to spare. Having worked for Jack Kemp and Wisconsin Senator Bob Kasten, his supply-side pedigree is impeccable. At the tender age of 34, he's already made a name for himself as one of Congress's staunchest tax cutters. Geological surveys suggest that Ryan's narrow head could fit in the space on Mount Rushmore separating Teddy Roosevelt from Abe Lincoln. As you read this, the dynamite is making its way to South Dakota.

Ryan's Social Security proposal, doomed to fail politically, is perhaps best seen as a shot across the bow. Whereas most partial privatization plans propose diverting a relatively small share of the Social Security payroll tax to private accounts, Ryan's plan would allow workers to shift all but 2.4 percent of their first $10,000 of income into the accounts, and 5 percent of wages from $10,000 to the contribution ceiling. Approved private investment firms would manage the accounts. At a minimum, workers who choose to invest in private accounts will be guaranteed promised Social Security benefits, indexed to wages. Armed with rosy predictions, Ryan anticipates a vast windfall that will lift all boats, spread ownership, revitalize the economy, and, over time, allow for dramatic reductions in the payroll tax.

There's another angle to Ryan's story. When Ryan was a teenager, his father died. Social Security survivor benefits helped his family stay afloat, and he strongly maintains that his proposal is designed to preserve the program, not destroy it.

Peter Ferrara. A policy analyst who has worked with Americans for Tax Reform, the Club for Growth, and other conservative groups, Ferrara is king of the Free Lunchers. Ryan, Sununu, and Gingrich have all taken their cues from his call to keep benefits intact while diverting revenues to personal accounts. The trouble is that the Ferrara plan, according to the nonpartisan actuaries at the Social Security Administration, will require vast general revenue transfers that over time dwarf the size of the anticipated Social Security shortfall. But if we assume that the perfection of cold fusion and time travel will generate unprecedented economic growth, and allow modern naval vessels to capture gold doubloons from galleons traversing the Spanish Main circa the sixteenth century, this gap can be closed painlessly, and without any tax increase.

The Root-Canal Reformers

Michael Tanner. At the Cato Institute, free lunches aren't the priority; freedom is. The safety net for workers isn't the promised Social Security benefit. Rather, it's an income floor of 120 percent of the poverty level, a safety net that will be paid out of general revenues. In contrast to the Ferrara-inspired plans, Tanner's proposal is closely attuned to the moral hazard problem of allowing workers, including affluent workers, to make risky investments while suffering none of the downsides. The personal accounts, at 6.2 percent, are about as large as those proposed by the Free Lunchers, but workers can top up their accounts up to an additional 10 percent of income.

The Cato plan very explicitly aims to maximize self-reliance for individuals, with the ultimate goal of eliminating all social insurance properties from public pensions. Transition costs will be financed through steep reductions in spending, not debt or new taxes. This is a proposal that truly aims to "starve the beast."

Ramesh Ponnuru. National Review's Ramesh Ponnuru makes the best case for President Bush's approach, combining small personal accounts with a shift to price indexing. Unlike the Free Lunchers, Ponnuru sees benefits currently promised to retirees as unsustainable. And he also foresees looser regulations on personal accounts over time, addressing some of Tanner's concerns. As for the transition cost, Ponnuru is sanguine. Conservatives shouldn't be misled by a temporary debt increase. The shift to price indexing alone will, by drastically reducing future benefits (illusory, in Ponnuru's view), take care of the problem over time.

The Dissidents

Bill Kristol. What exactly is Bill Kristol up to? Lest we forget, Kristol was the mastermind behind conservative efforts to derail President Clinton's universal health care proposal, not to mention a key architect of the Gingrich Revolution. So it's more than a little surprising that conservative opposition to President Bush's tentative reform proposals appears to be coalescing around Kristol's Weekly Standard. Many a conservative eyebrow has been raised.

But once you scratch the surface, Kristol's move makes sense. He's told The Washington Post in no uncertain terms that he is "bewildered why this is such a White House priority," and that he is "a skeptic politically and a little bit substantively." As for why Kristol is a skeptic, fellow neoconservative Adam Wolfson offers a clue. In the Winter 2004 issue of The Public Interest, Wolfson, an occasional contributor to the Standard, noted that neoconservatives "are generally supportive of something like Social Security." Because it has none of welfare's corrosive effects on the work ethic, "Social Security can hardly be considered detrimental to seniors." It is, in short, the kind of Big Government a Big Government conservative can love. Plus it's popular. You can't beat that.

John Mueller. Like Paul Ryan, John Mueller has a Jack Kemp connection. Mueller was Kemp's chief economic advisor from 1979 to 1988. Now they're on opposite sides of the Social Security debate. In late November of last year, the Standard published Mueller's "Taxes, Social Security & the Politics of Reform," one of the most persuasive arguments against partial privatization yet. Mueller offered an elaborate, sweeping, even dizzying account of the economic realities that have shaped human life since time immemorial. Mueller's analysis zoomed from contemporary partisan politics to Aristotle to Lincoln and finally back to Social Security without skipping a beat. Rumor has it that Mueller originally sought to work Augustine and Karl Marx and the Marx Brothers and the Nathan Kroll 1964 motion picture The Guns of August into his narrative, but that space considerations intervened. His central observation is that human and nonhuman capital are both crucially important, and that those who invest in human capital are, to put it crudely, getting screwed by the tax code.

What does this have to do with Social Security? Good question. Mueller thinks that current GOP proposals on tax reform reflect an overemphasis on the returns to nonhuman capital, i.e., property income. The returns to human capital, i.e., labor income, wind up with a punishing tax burden. Moving to Social Security private accounts, he argues, will only make matters worse. The transition cost involved will be cripplingly large, and funding it through either deficit spending or a steep payroll tax increase will kill economic growth. A better reform, according to Mueller, would involve slashing payroll taxes and benefits by a commensurate amount, allowing workers to invest the savings as they see fit. In this manner, Mueller splits the difference between social insurance and self-reliance.

Irwin Stelzer. Last week, Irwin Stelzer offered yet another critique of partial privatization. Stelzer begins by arguing that projections of bankruptcy depend on fairly pessimistic growth forecasts, and that there's reason to believe the status quo will keep working indefinitely. Stelzer then proceeds to chip away at the central pillars of the rumored Bush concept--switching from wage indexing to price indexing would involve steep benefit cuts and broken promises; workers will not control their "personal accounts" and so there will be no serious gain in self-reliance; and the risk-adjusted returns on financial assets, as John Mueller has argued since the mid-1990s, don't compare very favorably with Social Security.

After a brief rundown of the difficulties posed by the transition costs, Stelzer offers his own modest proposal--why not tax pollution and imported oil in lieu of payrolls?--before concluding that the Bush administration ought to take a breather, appoint a commission, mull its options, and come back to the table later on.

The Opposition

The AARP. This group catches a bum rap. Yes, it was a driving force behind a poorly designed Medicare prescription drug benefit that will accelerate, deepen, and expand the already massive transfer of wealth from the relatively poor young to the relatively well-off old; and yes, it is perhaps the most powerful of the professionalized interest groups that have paralyzed the reformist potential of American government for the past several decades--but hell, that's awesome if you're old. The AARP truly delivers for its members. And really, who can blame them? Exactly as you'd expect, the AARP is steadfastly opposed to any partial privatization plan. The AARP take, like the position of many players opposed to personal accounts, is that minor adjustments are acceptable, provided the principle of social insurance remains intact. With that in mind, investing a portion of the Social Security Trust Fund collectively, not in personal accounts, is acceptable. So is raising the contribution ceiling from $88,000 to $140,000.

Rahm Emanuel. Democrats in Congress, from the left of the party to the right, are against diverting payroll tax revenues to private accounts. There's still some doubt about Senators Thomas Carper and Joe Lieberman, but other Democrats are firmly with their colleagues in opposing any dramatic revision to Social Security. Still, there's a growing consensus that Democrats ought to propose some kind of reform of their own.

Possibly the most promising Democratic plan for Social Security reform comes from Congressman Rahm Emanuel of Illinois, a former Clinton staffer known for his political acumen. Emanuel, recently named chair of the Democratic Congressional Campaign Committee, is trying to steer the Democrats away from defending the status quo. In an interview with The Washington Post, he briefly sketched the case for what might be described as a Clintonite alternative:

"We should be for a savings revolution in this country," Emanuel said. "The president's plan isn't big enough. He just wants to rearrange the deck chairs. ... The public's view is of their insecurity about retirement. It's not about their Social Security. They're worried about what they can't see, not what they can see."

Rather than divert part of the payroll tax to personal accounts, Emanuel is hoping to create separate personal accounts that could supplement promised benefits. In this way, Democrats could offer their own vision of an "ownership society" but with far less risk than the vision championed by President Bush. As yet, Emanuel has not entertained any discussion of a cut in benefits. And if payroll taxes aren't reduced, and promised benefits aren't changed, one wonders if anyone other than the very prudent--exactly the people we don't need to worry about--would embrace voluntary personal accounts. A progressive tax credit designed to reward low-income workers for saving could sweeten the pot, but the effect remains unclear; once again, prudent low-income workers will do well. Emanuel could make enrollment automatic, allowing workers to withdraw if they so choose, but by reducing take-home pay, this could feel like a tax hike. Disgruntled workers will then riot, setting Chicago, Washington, and other major cities ablaze. Rahm Emanuel is playing with fire!

Peter Diamond and Peter Orszag. It's not just conservative think-tankers who are plotting Social Security reforms--liberal think-tankers are at it too. Peter Diamond and Peter Orszag have a plan that puts the "pain" in "excruciatingly painful." Their goal is to fully fund the program as far as the eye can see, and they do it by raising taxes and cutting benefits. To make the system more progressive, they also raise benefits for many low-income retirees. The contribution ceiling would be lifted, a surcharge on the rich would be established, and the payroll tax would rise along a slow incline through 2079, at which time the Democratic Confederation of Greater East Asia will annex the western United States, leaving the rest of the country, now populated primarily by immortal cyborgs suffering from severe weather-induced rust and related medical complications, to fund public pensions on its own. And because democratic polities everywhere embrace steep tax increases in the interests of protecting elderly men and women yet to be born from poverty, this proposal is sure to pass. Unless ...

The Fat Lady Sings?

Bill Thomas. The chairman of the House Ways and Means Committee is a very important man. The Bush White House has grown accustomed to knuckling under recalcitrant congressional barons. Thomas appears to be made of sterner stuff. According to The Washington Post, Thomas wants--you guessed it--more time. Rather than go full steam ahead, he wants legislators to debate the broader issues surrounding Social Security, including alternatives to the payroll tax and whether gender equity or the treatment of manufacturing workers demand revisions to benefit schedules. It's all very heady stuff, and it smacks of what the Post euphemistically referred to as a "multi-year endeavor." That is, Thomas's remarks could represent the end of President Bush's grand design. Or they just might kickstart a more open, bipartisan discussion of what the government can do to address a changing demographic picture.

Reihan Salam is a former TNR reporter-researcher.

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