With President Bush touring Europe and Congress on winter recess, it’s a good time to step back and ponder the progress of the White House’s prime domestic policy objective: redefining Social Security.
The battle lines are still forming, but so far the news from the front is not encouraging for the administration. Democrats have firmed up their lines and look unusually unified in opposition. Republicans, meanwhile, have yet to define their strategy.
The president spent most of last week preparing for his European relations test, but he did travel to New Hampshire for another campaign-style pep rally on Social Security. Once again, he painted the long-term financial picture in somber tones, although he eased up on using the word "crisis."
The Portsmouth audience was enthusiastically receptive, as Bush audiences always are. But most news accounts of the event also cited a University of New Hampshire survey showing that skepticism about Bush’s push on Social Security runs even stronger in that state than nationally.
There were other developments last week that could be read as portents. Robert Samuelson, a moderate-to-conservative commentator on matters of political economy, weighed in on the negative side. Personal private accounts might sound good, Samuelson wrote, but selling them as cost-free is "an exercise in mass public deception." The money to make them happen would have to be borrowed.
Samuelson’s concerns dovetailed with those of Federal Reserve Board Chairman Alan Greenspan. The oracular chairman told House and Senate banking committees he liked the private accounts idea fine as an economic factor in its own right. But his main point was to warn against reckless borrowing to float the transition costs.
The transition costs are not, as the name implies, a minor item. The president has proposed letting younger workers (born after Jan. 1, 1950) divert some of their Social Security payroll tax into private accounts. That means less money coming into the fund to pay all the benefits promised to all those born before 1950. So the system will need a transitional cushion of a trillion dollars or more.
Greenspan fretted about putting all that on the cuff, yet borrowing is the only means of transition financing the White House has even hinted at to date.
At one point midweek, a shaft of light suddenly shot through all the smoke. Speaking to a group of reporters, the president said he might be willing to close some of Social Security’s long-term shortfall by raising the cutoff on wages subject to the payroll tax.
The cutoff for income in 2005 is $90,000 (a fact not fully understood by many of those Americans who make less). If the affluent and their employers had to pay Social Security taxes on, say the first $120,000 or so of their earnings, the additional taxes paid would greatly improve the trust fund’s long-term solvency (assuming that the top earners do not receive a commensurately larger benefit when they retire).
To be sure, the president has pledged not to raise the Social Security tax rate (now 12.4% split evenly between employee and employer). He reiterated this vow as recently as last week in New Hampshire. But he has made no such promise regarding the cutoff, which already rises at least a little each year anyway (thanks to an earlier Social Security "fix").
So with this show of ankle, one suddenly could glimpse the first glimmer of a deal in the making. If Bush were to accept the higher cutoff, he could make a stronger case for adjusting the formula by which benefits are calculated. And if that bridge-from-both-directions closes the gap in the Social Security trust fund, there might well be room for a deal on private accounts in some form over some period of time. Even Bill Clinton advocated such accounts during his presidency, so long as they were a supplement to Social Security rather than a substitute for all or part of the guaranteed benefit.
But no sooner had the cutoff idea hit the papers at midweek than it was ruled out in public and in absolute terms by the top two Republicans in the House: Speaker Dennis Hastert and Majority Leader Tom DeLay. In separate remarks and on the record, each man called the higher cutoff a tax increase and declared it dead.
Few presidents have ever had more loyal allies at the top of the congressional power structure, so the immediate defection of Hastert and DeLay made any chance of such a change remote.
Nonetheless, it’s going to take something of a similar magnitude to shake up the current stalemate. For now, the White House is sticking to its three-stage plan. First, the president’s personal appeal sways public opinion on the issue. Second, an aroused citizenry demands solutions from Congress. Third, Congress takes responsibility for revamping the program, keeping a close eye on the president all the while for signs of his continued approval.
So far, we are still waiting for that plan to get traction in stage one.