A Deal on Social Security
THE BUSH administration's declining fortunes have buried the prospect of Social Security reform. Congress was never keen: Democrats united against personal accounts; Republicans were divided as to what sort they wanted. But although President Bush's critics may celebrate this defeat, delaying Social Security's reform makes the eventual change only harder. Both sides should acknowledge their contributions to this debacle -- and reengage.
The Bush team should accept that, as a political matter, it was a mistake to insist that personal accounts be part of reform. These accounts have advantages, especially for less well-off workers who do not already own stocks: They offer a good chance, though not a guarantee, of enhancing retirement by capturing healthy returns from the stock market. But Mr. Bush failed to convince Congress or the nation of this advantage, in part because the economic uncertainty engendered by technology and globalization creates a preference for federally guaranteed benefits. Given the political capital that the newly reelected president invested in personal accounts, his failure suggests that they are a non-starter.
Fortunately, personal accounts are not the essence of Social Security reform. Their merits are debatable, but what can't be debated is the need to restore the system's solvency. Starting 12 years from now, pensions will cost the government more than it collects from the payroll tax that's supposed to finance them. This shortfall, coupled with the much larger drain from Medicare, threatens to consume resources needed for other government functions. It is unsustainable.
This is where Democrats must acknowledge error. In the course of the Social Security debate over the past year, only one congressional Democrat produced a solvency proposal of any kind, and this was an unrealistic bill advanced with no support from party leaders. It's true that the president never came forward with a full solvency fix, either. But at least he supported sensible restraint in the growth of benefits to better-off retirees and was careful to leave the idea of payroll tax increases on the table.
Mr. Bush should now set aside the idea of private accounts in return for Democratic engagement on solvency. A template for compromise exists in the form of a bill written by Sen. Robert F. Bennett (R-Utah); Mr. Bennett says that several Democrats have shown interest in his proposal. Whatever the precise legislative vehicle, a solvency fix could be devised based on ideas that should not be controversial.
For example, how controversial should it be to restrain the growth in benefits to better-off retirees, given that benefits are growing rapidly? According to C. Eugene Steuerle of the Urban Institute, the average couple retiring today can expect to receive 3 1/2 times more in inflation-adjusted federal benefits than was the case in 1960, and the growth is set to continue. Surely not all this expansion is essential. Already, one-third of retirees get a majority of their income from sources other than Social Security. Should government really be taxing young families with mortgages and children to subsidize seniors who don't need the money?
Equally, how controversial should it be to raise the retirement age? Under current law, the age is due to rise gradually to 67. But advances in health and life expectancy justify more: If people retired for the same number of years now as in Social Security's early years, they'd work until 74. A retirement age of, say, 70, might be too tough for manual laborers who have difficulty switching to less strenuous work toward the end of their careers, and reform should take account of this problem. But already one-third of men ages 65 to 69 are working, up from a quarter 20 years ago. Capable seniors need not depend on government handouts.
Both Mr. Bush and the Democrats should see political advantage in solvency reform, however intense the reaction from the seniors lobby. For Mr. Bush, a success on entitlement reform might save his administration from going down as the worst budget steward in memory. For the Democrats, reform would infuse their message with new credibility. In the face of rising inequality and insecurity, Democrats make a plausible case for programs such as wage insurance for workers whose companies downsize and even for an extension of government health insurance that, as well as helping workers, might help companies struggling to survive in a competitive world market. If Democrats want to push these adventurous ideas, they must grapple with entitlements to make space in the federal budget.
This is one in a series of editorials examining Social Security and its future. Others can be found athttp:/