Social Security's battle over values
President's plan to overhaul Social Security reflects bigger fight of free market vs. safety net.
The coming Washington struggle over President Bush's plan to partially privatize Social Security promises to be particularly intense, because it revolves around a core issue of politics: the values the federal government should espouse.
The economics of retirement security will be a major factor in the debate, of course, as will the usual Democratic-Republican partisan divide. The overall outlook for the federal budget (lots of red ink) could prove crucial in lawmakers' consideration.
But opponents of private retirement accounts generally see them as a threat to the collective protection offered by a big government program. Proponents judge them as an encouragement to individualism, and a reduction in Washington's power.
That's why full-page ads hitting the plan are already running in big newspapers, and why Mr. Bush is promoting the idea around the country before legislation hits the House or Senate floor. The debate is not just about the solvency of the Social Security trust fund half a century hence. It is also about what the largest and most popular US program is for. "For us, it's never been about solvency. We've always believed it was more important to give workers control [over their own money]," says Michael Tanner of the Cato Institute, a Washington think tank.
This week will see a concerted push by the administration on Social Security partial privatization, with the White House orchestrating a series of speeches and official appearances arranged about the subject. Bush himself hosted a discussion of the idea on Tuesday. Vice President Dick Cheney and Treasury Secretary John Snow are scheduled to speak on Thursday. Budget director Josh Bolton will talk about the implications of borrowing $1 trillion or more to fund the overhaul before the US Chamber of Commerce on Friday.
"Each of the speeches will focus on a critical aspect of Social Security and the need for strengthening it for future generations," White House spokesman Scott McClellan said Tuesday.
Current official estimates hold that Social Security will begin paying out more in benefits than it collects in revenue in 2018. As currently designed, the system will be able to pay full benefits until 2042, according to a middle-ground Social Security Administration estimate.
Critics charge that the administration is exaggerating the extent of the program's problems in an effort to pass partial privatization. The administration, for its part, says that its opponents are simply trying to frighten seniors. Bush has said that current retirees and those nearing retirement will not be touched under his Social Security overhaul. "The issue really is about younger workers, and most younger workers believe they're not going to see a dime unless something is done," said Bush in an interview in the Wall Street Journal on Tuesday.
The administration has not issued a detailed plan. In general, the White House wants younger workers to be allowed to divert some portion of their Social Security taxes into private accounts that they can invest in stocks, or bonds, or however they see fit.
By itself, this change would not solve any long-term solvency problem. But White House officials have signaled that Bush is likely to couple it with a long-term reduction in benefits, most likely implemented by changing the formulas used to calculate growth in benefit eligibility over a worker's lifetime. Such a change would bring Social Security's obligations and its resources more into balance.
The idea of private control of government retirement assets may have begun with the prominent University of Chicago economist Milton Friedman, who promoted them as early as the 1950s. In Latin America, where Chicago-trained free market economists had great influence on governments in the 1970s and '80s, they are already in use in a number of countries. Great Britain features private accounts in its pension system as well. "They're actually quite widespread," says Mr. Tanner.
Cato, a think tank dedicated to generally libertarian ideas, has kept the flame of private retirement accounts burning since the '80s in the US. Among other things, Cato's president met with then-Gov. George Bush in 1998 to promote the subject.
AS a rule of thumb, voters in the US have an opinion of them that is in inverse proportion to their opinion about the solidity of Washington's Social Security pledges. According to a new USA Today poll, private accounts have a 63 percent disapproval rating among voters over 50, many of whom see retirement looming in the near future. By contrast, under-30 workers, who are often cynical about whether they will ever get their Social Security taxes back, approve of them, by a 55 percent to 42 percent margin.
To supporters, the advantages of private retirement accounts are obvious. The stock market generally outperforms government notes, meaning the returns on a given tax dollar will be higher. The accounts are inheritable. In short, they are tangible assets in a world where economic change seems to be accelerating.
For private employers, the guaranteed benefit of a pension has been largely replaced by the matched contributions of a set-aside retirement account. Why shouldn't the government do the same thing?
It should not, because tangibility is not the only virtue when it comes to retirement assets, say proponents. To lessen the government-provided benefit of Social Security would be to lessen the security it provides, with a small "s."
Some workers might do better with private accounts, but others would do worse. The unpredictable nature of gains and losses means that you might see your account double when you're 25, and have little money invested. Then it might drop by half when you're 62 - and you'd lose lots of cash. "A lot of advocates of these accounts are underestimating the riskiness to individual workers of these plans," says Gary Burtless, a Brookings Institution economist who has studied them.