How President Bush's Social Security Reform Died

Social Security reform is dead. How it died tells us a lot about both U.S. political parties.

For a while, Social Security reform was like Westley, the hero of “The Princess Bride.” After his friends discovered him in a torture chamber, apparently dead, they took him to a miracle maker named Max to see if he could be revived.

After inspecting Westley, Max had good news. “There's different kinds of dead,” he said. “There's sort of dead, mostly dead and all dead. This fella here, he's only sort of dead.”

Until two weeks ago, Social Security reform was sort of dead. But now it seems to be all dead. The breakdown occurred when the administration backed away from a proposal making its way through the House of Representatives that would have introduced personal accounts without specifically restoring solvency to the system.

Ben Bernanke, chairman of President George W. Bush's Council of Economic Advisers, publicly signaled the White House's displeasure with such an approach. Asked if restoring solvency was an inviolable condition, Bernanke said, "Yes, I think the president will insist on maintaining the long-term solvency of the Social Security system.''

Strained Ties

The word from the other side of town, up on Capitol Hill, is that this signal from the president sucked the remaining life out of the House measure. There appears to be nothing left for even Miracle Max to work with.

So Washington just spent half a year squabbling about Social Security with little effect. What does this episode teach us about the state of the capital?

For one thing, it tells us that relations among the Republicans are strained, to say the least. Given that the party controls Congress and the presidency, it's ludicrous that the president would be negotiating in the press with his Congressional allies almost a year after he put Social Security reform at the top of his agenda.

This occurred because the White House ordained its key reform objectives without involving congressional leadership in the process.

Tied Hands

From the outset, many in Congress believed Social Security reform could only be achieved if it were included in a broad tax-reform package, or some other, more general legislative action. Only then would the horse traders have enough room to buy the votes needed to push the plan through. By insisting on the separation of Social Security and other initiatives (especially tax reform), the president tied the hands of his allies.

It's easy for the economists on the Council of Economic Advisers to outline Social Security changes; crafting reforms that can become law requires legislative expertise. The men and women in Congress are the ones with this expertise. Cutting them out of the process meant that the president went forward with a plan and tactical strategy that turned out to be legislatively impractical.

The president is a strong leader. He makes his objectives plain, and pursues them doggedly. The best leaders, however, are like basketball great Magic Johnson: They make their teammates more productive. To continue the basketball analogy, in this episode, the president was a ball hog.

Economic Radicals

Another thing we learn from the demise of Social Security reform is that when it comes to economics, this is now Howard Dean's Democratic party.

This completes, really, the economic radicalization of the Democrats, and it is a frightening picture--frightening if you consider that they might run the country again some day.

The fact is that the Social Security reform proposed by the president is quite moderate. Individuals could choose to put some of their payroll tax in an account. They could choose not to as well.

Reforms of this type are hardly new or radical. By my count, there are now 31 countries that have incorporated private accounts into their public pension systems, a list that includes the U.K., Sweden, most of South and Central America, a large number of central European countries and even Mongolia.

So the idea of letting citizens have increased ownership of their pension money is mainstream enough to please Swedes and Mongolians, but so “radical” that U.S. Democrats opposed it with all their might.

Squandered Chance

To be sure, there are many reasonable Democrats. The left-leaning Progressive Policy Institute, for example, has published a number of sensible papers on Social Security. But their views have not pushed leadership to the table.

The Democrats have squandered a tremendous opportunity. Think about it this way. Right now, if you participate in the U.S. Social Security system, you pay money in, and the government promises you that someday it will pay you money back (hopefully, with interest).

If private accounts were introduced, then you might buy a U.S. Treasury bond and hold it until retirement. In both cases, you pay money in and the government promises to give you money back. The labels change but the economic difference is not earth shattering.

In politics, one should be delighted if opponents care deeply about achieving something of relatively minor importance. You can pretend to be outraged, and then can trade support for your opponent's measure for something significant to you. For instance, if Republicans were the minority party, they might support Democratic approaches to restoring Social Security solvency if a school voucher program were also enacted.

Now Tax Reform

Instead, we got only obstruction. Perhaps this is because Democratic leaders don't have any novel policy ideas they would like to see implemented. Perhaps it's because the Democratic leadership is currently to the left of the Mongolians on Social Security. In either case, it is hard to imagine the picture will be attractive to moderate swing voters in the next election.

Another chance for change is ahead. The president's advisory panel on tax reform will make a recommendation in the fall. Its report will kick off a debate and begin the legislative process on that key issue.

Social Security solvency may well be addressed while tax reform is pursued, perhaps as early as next year. But the approach pursued by the president this year is dead, and he has himself and the Democrats to blame.

Kevin A. Hassett is a resident scholar and the director of economic policy studies at AEI.

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