The Magazine

Losing the Social Security Battle

From the April 18, 2005 issue: And how to win the war.

Apr 18, 2005, Vol. 10, No. 29 • By STEPHEN MOORE
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PRESIDENT BUSH'S PLAN TO CREATE personal retirement accounts for Social Security, which seemed so promising a few months ago, is now officially floundering. Senate Republicans are now crafting a compromise proposal that takes personal accounts off the table. Meanwhile, House speaker Denny Hastert recently said "not this year" for Social Security reform. And Democrats remain united in their "just say no," obstructionist strategy.

Despite all this, there's still a path to victory for reformers--though little chance of instant gratification. If the debate over the past months on Social Security has established anything, it is that the Ponzi financing scheme for Social Security--an invention of FDR and the architects of the New Deal--is living on borrowed time. The political momentum here and in dozens of other nations is on the side of the privatizers.

Let's start with a proposition that seems increasingly self-evident: This is a fight for the long haul. The White House and Republican political strategists probably deluded themselves into believing that the stars were finally aligned to whip personal accounts through Congress this year. That calculus now appears to have been wrong. The conundrum for the White House has been how to rally even token Democratic support for modernizing Social Security.

For eight weeks now the White House has been romancing the few remaining moderate Democrats in Congress with compromises and concessions to gain even a tepid endorsement for personal accounts. Each overture has been spurned. Whether Republicans offer tax hikes, benefit cuts, add-on personal accounts paid for out of general revenues, and even means-testing, the response has been the same: no to personal accounts. The left's inalterable and irrational opposition to private accounts parallels their aversion to concepts like school vouchers. In both cases it seems to matter not a whit to congressional Democrats that the beneficiaries of reform would be the very minority and low-income workers they claim to champion.

In short, the national Democratic party has erected a Berlin Wall of opposition to meaningful Social Security reform. Many political analysts (myself included) believed that after having been wiped out in the last two elections because of their bullheaded obstructionism, Democrats would be in a more accommodating frame of mind. Nope. And despite all their recent casualties, they still have sufficient forces to go on obstructing.

But even though personal accounts may go nowhere this year, reformers can still take heart. Here's why. First, the policy debate is completely commanded by conservatives' ideas, not the left's. That's a political victory in itself. Second, if Republicans lose the fight this year, they have in many ways further imprinted in voters' minds the message that the Democratic party is reactionary and devoid of ideas. Republicans, by pressing boldly for personal accounts, have succeeded in demonstrating again that they are the party of reform. To most Americans, the main DNC/Brookings Institution/AARP talking point on personal accounts--that the program doesn't need fixing--is almost laughable.

Finally, and most important, losing the first round of the battle, if it comes to that, doesn't automatically discredit the idea. Consider the transformational policy milestones of recent decades. It has taken more than 20 years from the time President Reagan announced SDI, to almost universal skepticism from the intellectual class, for the missile shield program to become a (mostly) accepted component of our defense strategy.

Welfare reform was proposed by conservatives in the late 1970s, and slowly gained traction thanks to the intellectual spadework of Charles Murray and other scholars, but it wasn't until 1996 that the Great Society welfare program was toppled. And when it was, almost half of the Democrats voted for work requirements, time limits for benefits, and greater autonomy for the states. Jack Kemp recently reminded me that in 1978, when he first introduced what later became known as the "Reagan tax cut," the measure received fewer than 80 votes on the House floor. Three years later Kemp and Reagan prevailed.

Most deeply ideological battles require years of public battle and argument before the electorate buys into the change agenda. So where does the White House go from here? Get back to first principles and sell the upside of personal accounts--ownership, personal control, a more secure financial future, and the prospect of hundreds of thousands of dollars of real personal wealth for every worker. Republicans must resist the trap of embracing plans that ask workers to pay more, work longer, and get less. The past two months of such discussions have led to exactly zero Democrats jumping aboard the president's personal account alternative. In politics as in poker: Stop drawing cards and tossing in chips on a losing hand.

The solvency problems of Social Security are, of course, very real. But this tsunami of red ink headed our way is arguably a more acute political problem for Democrats than for Republicans. Dr. Thomas Savings, an economist at the National Center for Policy Analysis, calculates that if entitlement programs are not restrained, within roughly the next 20 years all federal tax revenue collections will be absorbed for the purposes of sending out retirement checks and paying for the health care and prescription drug expenditures of senior citizens. The rest of the left's multitrillion-dollar policy agenda will be stillborn. If the Nancy Pelosi vision of nirvana is for the federal government to simply become an income transfer program from young to old, then so be it. Why should Republicans fall on their swords to fix entitlement programs so that money will be freed up to fund the whole playpen of liberal programs?

Finally, to put the Democratic obstructionists in an especially uncomfortable position, it would make sense to start proposing fallback positions that at least get personal accounts started. One idea would be to defuse the fatuous "risky stock market" argument by simply offering a plan where workers can have a private account, but are permitted to purchase only Treasury bills. Take the stock market out of the equation and there is not even the odor of risk with personal accounts.

Another idea: Since almost all Americans, regardless of political party or age, are infuriated by the practice of Congress "raiding the trust fund" and spending the surplus payroll tax revenues on road programs, Pentagon salaries, and Lawrence Welk Museums, why not just place the surplus payroll tax collections into millions of personal accounts? This would allow workers to direct about 2 to 3 percent of their paychecks into individual accounts without in any way jeopardizing benefit payments. The only fail-safe way to prevent the continuing trust fund raid by Congress is to divert the surplus dollars into personal accounts so they can never be looted again. True, the surplus only lasts for another 10 years, but over that period over half a trillion dollars would be placed in the investment accounts of workers, and the vital precedent of establishing personal accounts would be firmly established.

That is the beachhead that Democrats want desperately to deny President Bush and the reform movement. Freedom does indeed create its own political momentum. And that's why even incremental steps toward Social Security private accounts are well worth fighting for.

Stephen Moore is president of the Free Enterprise Fund.