The Challenge to Democrats

Sunday, May 1, 2005

FOR THE past three months Democrats have declined to engage in a debate over Social Security. President Bush proposed a way of giving workers the option, but not the obligation, of saving some of their Social Security money in personal accounts. While he was crisscrossing the country in an attempt to prepare voters for unsettling change, Democrats offered no proposals of their own, saying that Mr. Bush should first come forward with a plan to plug Social Security's long-term deficit. In his news conference on Thursday, Mr. Bush took a first step toward offering such a plan. It is time for Democrats to reciprocate.

Mr. Bush's ideas on personal accounts and deficit reduction offer plenty of openings for Democrats to weigh in with improvements. On personal accounts, the president's proposal avoids the pitfalls of some reform experiments abroad: It offers workers a limited choice of conservative investment options, keeps management fees to a minimum and encourages "life-cycle" accounts that move savings gradually out of stocks as retirement approaches, insulating workers from a sudden collapse in the market.

But the president has mistakenly ignored one recommendation from the Social Security commission he convened in his first term. Rather than capping contributions to personal accounts at $1,000 per year, he has proposed ultimately allowing higher-income workers to divert much more. This would drain so much from the traditional system that it would be hard to maintain its progressivity.

The president's new proposal on plugging the Social Security deficit is similarly promising but imperfect. Of all the types of benefit reduction commonly discussed, Mr. Bush chose the one that is best for low-income Americans. He did not propose raising the retirement age, an approach that makes sense given rising life expectancy but that would be tough on manual workers. He did not propose a stingier formula for calculating all workers' initial retirement benefits, even though a White House memo leaked earlier this year suggested that he might be heading in that direction. Instead, Mr. Bush suggested that only better-off workers should have their benefits calculated in the less generous way -- a way that would protect the purchasing power of future pensions against inflation but not reflect the faster rise in wages, reversing a reform devised in the 1970s. Low-income workers would be held harmless, while those in the middle would be subject to a blend of wage and price indexing.

There are fair questions about this approach. It's not just the richest who will be hit: Depending on how the details are fleshed out, "better off" workers may mean those who have earned an average of, say, $60,000 a year over their careers. It's also true that the president could have boosted his chances of winning over Democrats if he had called for tax increases to help plug the Social Security shortfall: It's not reasonable, in the context of repeated tax cuts over the past four years, to say that the shortfall has to be plugged exclusively by benefit cuts. Mr. Bush has carefully left open the option of raising Social Security taxes on income above the current cap of $90,000. He ought to be explicit in embracing a surtax of 2 or 3 percent on all income over that level.

These are criticisms that Democrats should voice. But the president has presented ideas that are reasonable enough to serve as the starting point for action. Yes, personal accounts pose risks. But they are also likely, albeit not certain, to enrich the retirement of the majority of workers who opt for them; they should not be dismissed as heresy. Yes, cutting the value of future pensions relative to wages might force some middle-class Americans to save more privately or work a bit longer, but the pain is less than under many other proposals. The Social Security system does need fixing. And the longer Congress ducks it, the more the fix will hurt.

This is one in a series of editorials examining Social Security and its future. Others can be found at

© 2005 The Washington Post Company