Social Security As Welfare
Pat Moynihan was puzzled. He was speaking in March 1994, on an almost deserted Senate floor, about Social Se-
curity, but some unlikely people were listening.
They were clerks in the front of the chamber -- mostly young law school graduates. "They never listen to speeches," Moynihan later wrote, "having other things to do and having heard it all before." He summoned them to his desk, where they confirmed his suspicion that they were listening because they had never before been told there would actually be Social Security for them. This was, Moynihan wrote in 1997, symptomatic of the fact that "as a people, we are simply turning away from government."
Were Moynihan still with us, he, unlike today's mostly unreflective Democrats, would articulate why President Bush's proposal -- the explosive combination of progressive indexation of Social Security benefits and personal retirement accounts financed with a portion of payroll taxes -- is dynamite packed around the foundation of the Democratic Party's edifice of belief. That foundation is an ethic of common provision through government.
Progressive indexation -- larger benefits for the less affluent -- would mean that for the more affluent 70 percent of Americans, Social Security would be of diminishing significance as their affluence grows, with dwindling relevance to retirement planning. This 70 percent would be the portion of the population most able to take advantage of personal accounts. And it would possess more than 70 percent of society's political skills -- the will and ability to get the attention of politicians by articulating grievances and participating in politics by financial contributions and other means.
Progressive indexation is means testing politely labeled, and means testing, however labeled, is an attribute of welfare programs. Which is why in 1997 -- eight years before Bush's attempt to attract Democratic support by proposing progressive indexation to make Social Security more redistributive -- Moynihan understood why a combination of progressive indexation and personal accounts "carved out" of Social Security would repel Democrats. Moynihan wrote:
"Once the great majority of citizens found that they would do better in the private investment part of this new system, support for the redistributive aspects of Social Security would quickly erode. It would become a residual relief program for the poor elderly, possibly turned over to the states as is done with welfare."
Moynihan had been dismayed by the 1996 welfare reform legislation, which he strenuously opposed but a majority of Democratic senators supported. The core of that legislation was repeal of a portion of the 1935 act establishing Social Security. The repealed portion -- Aid to Families with Dependent Children, a welfare entitlement without a time limit -- was, Moynihan said, "the oldest feature of the 1935 bill." It enabled the federal government to take over from states the responsibility for widows' pensions. "Do not doubt," he warned, "that Social Security itself will be next," that repeal of AFDC would be "the first step in dismantling the social contract of the 1930s, in which we undertook the care of the elderly, the unemployed, the children."
Moynihan favored personal retirement accounts for a reason unrelated to Social Security solvency -- for distributive justice, to provide an estate "for doormen as well as those living in the duplexes above." In today's parlance, Moynihan did not advocate the "carve out" account favored by President Bush, which would be financed by a portion of the individual's Social Security payroll tax. Rather, Moynihan and Richard Parsons -- now chief executive of Time-Warner; in 2001 co-chair with Moynihan of President Bush's Commission to Strengthen Social Security -- suggested "add-on" accounts:
"These accounts could be financed by the individual worker voluntarily adding 1 percent of his pay on top of the present 6.2 percent employee share of the Social Security payroll tax. The federal government could match the employee's contribution with a matching 1 percent of salary, drawn from general revenues."
Former senator Bob Kerrey, the Nebraska Democrat who worked closely with Moynihan concerning Social Security, and David Podoff, an economist who advised Moynihan on Social Security and other economic and budget issues, stress that Moynihan's recommendation of general revenue was made when surpluses were projected "as far as the eye could see."
Times change, and we see how far the eye can see. Which is a lesson for everyone debating "permanent" fixes of Social Security based on economic and demographic projections for the next 75 years.
Whatever is done, or if nothing is done, to reform Social Security, it will be increasingly perceived as a welfare program, important primarily for the least self-sufficient minority. And the benefits it promised in 1994 will not be there when those young clerks who came to Moynihan's desk retire.