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Clinton Sought Middle Ground on Social Security

Social Security

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  • State of the Union

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  • By John F. Harris
    Washington Post Staff Writer
    Monday, January 25, 1999; Page A1

    Drafts of President Clinton's State of the Union address had been circulating for weeks inside the White House, but in early January, they still did not say a word about Social Security.

    The hole in the heart of the speech was partly intentional: Clinton was determined that no details leak in advance on one of the most important policy initiatives of his presidency. But there was another problem: With the speech date fast approaching, Clinton and his senior economic aides were still undecided about what to say.

    How much of the rising budget surplus was Clinton prepared to devote to save Social Security from insolvency? Was he willing to risk criticism by Republicans and some economists by investing a portion of Social Security directly in the stock market? How much Democratic backlash would there be if he moved in the direction of private retirement accounts favored by the GOP? Should he lay out specific proposals at the State of the Union or cling to generalities?

    The answers would have consequences for Clinton's short-term political standing as well as for the record he hopes to leave for history. But as Clinton, Vice President Gore and a host of senior officials met on Dec. 22 in the White House Cabinet room, the group had more agreement about the vast political risks of taking on the Social Security problem than on solutions.

    "So, your recommendation is I should just jump off a roof," Clinton said at that meeting, after hearing an overview of options from national economic adviser Gene Sperling.

    In the end, the words Clinton delivered last Tuesday night were bolder, and more specific, than expected by many people who have been following the Social Security debate as it has unfolded over the past year. And Clinton succeeded in capturing the political middle ground on the issue more than his rueful humor with Sperling suggested.

    But this occurred only after a laborious search for middle ground among the members of his own team, according to several participants and others with close knowledge of the deliberations. As these people describe it, the decision about what the president should say last week did not provoke the kind of bitter internal divisions that have often accompanied policy debates in the Clinton administration. Even so, several key players started the process last year with markedly different priorities, moving slowly toward consensus over several months.

    Gore had expressed deep skepticism about making individual investment accounts part of the solution to Social Security. So had Social Security Commissioner Kenneth S. Apfel.

    Treasury Secretary Robert E. Rubin disliked the idea of investing Social Security funds in the stock market, instead of exclusively in government bonds. Other participants insisted that putting money in the market was the only way to achieve the higher returns needed to avoid politically painful tax increases or benefit cuts.

    Political advisers such as Paul Begala and Douglas B. Sosnik warned against having Clinton embrace any Social Security plan that would prompt fears among congressional Democrats that Clinton was moving toward a GOP approach to a program that was a product of the New Deal, the most popular Democratic entitlement program ever. Especially during the impeachment drama, Clinton needed to keep his partisan base secure.

    But even as politics dictated caution, another factor called for a bolder approach. If Clinton were to have any chance of making an overhaul part of the legacy of his administration, Sperling insisted, he would have to prove to Republicans that he was serious about the issue and respectful of their priorities. Sperling, sources said, kept returning the discussion toward ideas for incorporating some type of individual investment accounts into Clinton's proposal.

    "The trick," said one participant in the debate, "was to find something that would hold most of the Democrats together but not seem like a 'screw you' to Republicans."

    The fears were well-placed. The GOP had already been baiting Clinton about his failure to lead on Social Security. And Democrats were fearing what one House leadership aide called "a return to triangulation" the phrase Clinton political aides used for his 1996 strategy of distancing himself from Democrats in order to cut deals with Republicans.

    As the internal debate dragged on over the last few months, in what some participants described as long and excruciatingly technical meetings in Sperling's office, the administration's task became at once easier and more difficult.

    Aides said they realized that the public expectations bar was rising. Early in the process, some advisers had hoped Clinton could keep his powder dry by letting Republicans go first with their ideas for Social Security. All aides were determined not to have Clinton put forward his own line-by-line legislation, recalling how in his first term, health-care debate became a lightning rod for criticism.

    Over time, however, the group concluded that Clinton would look rudderless if he did not offer at least a general framework of how he proposed to both dedicate the surplus and overhaul Social Security.

    At the same time, the administration was blessed by good news from the economy. Every time Clinton got new estimates on the size of the projected surplus for coming years, the figure kept rising. The projections showed the Treasury would have vastly more money, an estimated $4.4 trillion surplus over 15 years, than it earlier anticipated.

    Some aides had wanted Clinton to devote nearly all of the surplus to Social Security setting up what they thought would be a politically compelling contrast with GOP plans for tax cuts.

    But devoting all the surplus proved impossible. For one, aides said, Clinton indicated that he wanted to spend some of the surplus on another major entitlement program with long-term funding problems, Medicare. Meantime, the Pentagon had insisted on a $110 billion funding increase over the next five years an unexpected claim on the budget that budget director Jacob Lew said could not be funded after this year without either making cuts in other programs or dipping into the surplus.

    As the year ended, Clinton's budget team arrived at a proposed formula for dividing the surplus that devoted 62 percent of it, an estimated $2.7 trillion over 15 years, to Social Security. That is enough to significantly extend the life of the program but not enough to guarantee its 21st century solvency unless Clinton and Congress can later agree on either benefit cuts or revenue increases.

    In late December and early January, the administration was arriving, haltingly, at agreement on some of the other knottier questions. Rubin and his top aide, Deputy Treasury Secretary Lawrence H. Summers, softened their objections to investing a portion of Social Security in the market so long as the amounts were carefully limited. The administration proposal is to limit the total amount invested in stocks to no more than 15 percent.

    Early reaction to the proposal to invest part of the Social Security system in the market has been strongly negative. Federal Reserve Chairman Alan Greenspan assailed the idea, as did many Republicans. Administration sources said Clinton is not wedded to the plan but predicted that support may grow as critics assess the unpleasant alternatives: cut benefits or raise taxes.

    The question of individual accounts remained open until near the end. Sperling, sources said, had for a time floated an idea that would set up a two-tier Social Security system. The old system would remain intact, funded by the 12.5 percent payroll tax. But individuals would be allowed to "add on" to the basic Social Security benefit with individual accounts.

    White House Chief of Staff John D. Podesta's regular soundings on Capitol Hill there were frequent meetings with House Minority Leader Richard A. Gephardt (D-Mo.) and Senate Minority Leader Thomas A. Daschle (D-S.D.) indicated that there was not the fierce opposition to any form of individual investment accounts that the White House had originally supposed.

    But Gephardt was wary of merging the accounts into Social Security fearing, as one aide described it, this "would be the camel's nose under the tent" toward privatizing the entire system. Meanwhile, there were technical concerns: Summers warned that creating a two-tier Social Security System could be a logistical nightmare.

    Late in the process, an escape hatch to the dilemma emerged. The administration would propose new Universal Savings Accounts (USA) in which money from the surplus would be used to set up investment accounts, separate from Social Security, to which individuals would add their own money. The USA idea would be a bow in the direction of GOP priorities. But Clinton could give it a progressive twist by giving a larger benefit to lower-income earners. Clinton signed off conceptually on the proposal Jan. 6 but did not make a final decision on the Social Security passage of the State of the Union until a week later. Aides kept it a tightly held secret until the day of the speech.

    White House officials believe the Social Security proposal was a clear political triumph putting Republicans on the defensive and showing the nation that impeachment has not stripped Clinton of his vitality at setting policy. If the early reviews continue to hold, many officials said Sperling will get credit.

    Sperling is regarded within the administration as a likable but exasperating colleague. Yet his penchant for long meetings and numbing detail proved an asset in forging an internal political and policy consensus on Social Security, officials said.

    "It was like Gene herding cats," said Sosnik of the deliberative process. "He brought together a lot of people with a lot of knowledge and a lot of opinions."

    © Copyright 1999 The Washington Post Company

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