Up From the Depths
THE BUSH administration has signaled that it wants to discuss Social Security reform with the incoming Democratic majority in Congress. This may sound quixotic: President Bush failed to secure reform when his own party controlled the legislature, so what hope does he have now? But the president's top economic advisers, including his Treasury secretary, his chief of staff and his budget director, appear ready to drop what Democrats call privatization -- the diversion of payroll tax revenue into personal retirement accounts. Unless they want to define themselves as unbendingly partisan, the Democrats should accept the administration's invitation to discuss reform.
Democrats who want to avoid such talks will assert that the administration is not acting in good faith. In a news story in Wednesday's Post, Rep. Sander M. Levin (D-Mich.), the incoming chairman of a House subcommittee on Social Security, cited the nomination of Andrew G. Biggs, a proponent of personal accounts, to the No. 2 slot at the Social Security Administration. "The president is sending signals that what he's really after is privatization," Mr. Levin asserted. "And that's just a non-starter." But Mr. Biggs is respected and liked by Democratic economists, who have no trouble discussing reform ideas with him. The administration has recently acquired a pragmatic, deal-oriented Treasury chief. Refusing even to discuss reform with him would be to pass up an opportunity to fix a pressing
Some Democrats dispute the urgency of the problem, arguing that the notional assets in the Social Security trust fund are sufficient to pay all the benefits promised to retirees for the next 40 years. But a retirement system needs to make credible promises that last longer than that: A worker who is 30 can't entrust her retirement to a program that will run short of money as she turns 70. Moreover, a solvency fix for Social Security requires a long lead time. Cuts in benefits must be signaled years ahead so that workers have time to plan for them. Any increase in the payroll tax needs to be implemented soon in order to keep the size of the increase to an acceptable level.
Another argument against addressing Social Security is that health care is more pressing. It's true that the budget challenge Social Security presents, which is the result of the retirement of the baby boomers plus rising life expectancy, pales next to the budget challenge Medicare presents, which is the result of those two factors multiplied by galloping inflation in health-care costs. But it makes sense to start with whichever part of the entitlement problem can be tackled most readily, and that is likely to mean Social Security. The administration has indicated that it is ready to do a deal on the retirement system, and much of the technical groundwork has been done. There is nothing to stop Democratic leaders from advancing health proposals too, but for the moment neither they nor the administration have a plausible blueprint for reining in Medicare costs.
If the Democrats engage on Social Security, they may find themselves discussing some form of personal retirement accounts. This should not be confused with "privatization": Personal accounts that are added to the Social Security system are different from ones that are funded with money carved out from existing payroll revenue. Creating such add-on accounts could boost national savings, allow workers to build nest eggs and cushion them from the benefit cuts that are inevitably part of a reform. As they respond to the administration's overtures, Democrats should not foreclose this option.