Since Republican Sen. Barry’s Goldwater’s disastrous 1964 run for the presidency, no presidential nominee has proposed major changes in Social Security, which is often called the third rail of American politics.
That’s about to change.
Texas Gov. George W. Bush, the presumptive Republican standard bearer, on Monday will propose transforming the current pay-as-you-go Social Security system to a plan that rests in part on individual accounts. The core of the proposal would allow individuals to put a portion of the 12.4 percent Social Security payroll tax, which is half paid by employers, into accounts earmarked for their own retirement.
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That Bush has raised the issue at a time when every poll suggests he has a good chance of capturing the White House offers a telling comment on how far proponents of Social Security privatization have come in the last 20 years. What began as a fringe movement among conservatives has entered the mainstream.
It is a sign of halcyon economic times and a booming stock market.
The Republican Party, which is nearly universal in its support for private accounts, is betting that the growing number of better-off Americans will find individualized accounts for Social Security politically appealing. Investors already have individualized defined contribution pension plans like 401(k)s that are largely invested in stocks. For them, Social Security represents the next logical step.
Bush’s advisers are also betting the proposal will make inroads among younger voters, who are largely unaware of Social Security’s history and face the daunting prospect of supporting the Baby Boomers in their retirement years. Polls have consistently shown that many younger workers do not believe in the long-term viability of the Social Security system, and are attracted to programs that may help them build individual wealth.
Several recent national polls showed Bush running with surprising strength among young voters, perhaps by margins great enough to offset any backlash from older voters.
Bush’s bold proposal represents one of the true clean fault lines between himself and Vice President Al Gore, the presumptive Democratic nominee. “Somebody said, `Why are you bringing up such a touchy issue?'” Bush said Friday. “I said because I’m running to lead is why.”
But his move comes with some political risk. Gore relishes the prospect of a debate over the future of Social Security, and he’s certain to highlight it during the campaign. He will use it to try to energize a political base deeply committed to the idea that Social Security should remain a social insurance program that is both universal and provides the greatest returns to society’s less fortunate.
His position is consistent with the Clinton administration’s opposition to creating private accounts for all or part of Social Security. President Clinton more than a year ago suggested investing part of the Social Security trust fund in the stock market, but only if the additional returns from that investment were returned to the system as a whole and distributed in a traditional manner.
To date, mainstream Democratic constituencies like organized labor and senior citizens groups have had little reason to get excited about Gore’s candidacy. But in a series of appearances planned for this week, including a meeting of the American Association of Retired Persons on Wednesday in Orlando, Gore is expected to charge that Bush’s plan undercuts Social Security’s traditional mission and leaves the program fiscally vulnerable.
He’s taking the same message to younger voters, many of whom may be hearing it for the first time in their lives.
“Social Security is a solemn compact between the generations, and it embodies our deepest obligations to one another,” Gore told students at a community college in Portland, Ore., on Friday. “Let’s remember that Social Security is about something far greater than numbers on a spreadsheet or the day’s stock prices.”
Most Democrats view Social Security’s creation in 1935 under President Franklin D. Roosevelt as one of the party’s grandest domestic triumphs. The numbers bear out their contention that a universal social insurance plan funded through payroll taxes provides its greatest benefits to less well-off Americans.
Social Security provides a generous return on investment, to use the parlance of the privatizers, for widows, the children of deceased workers, people (mostly women) who move in and out of the workforce over their working lives, and retirees who earned below-average wages for most of their careers.
Moreover, the distribution of benefits to retirees is progressive, which would change under a system with individual accounts. According to Alicia Munnell, director of the Center for Retirement Research at Boston College, workers who earned average wages over the course of their work lives get 40 percent of their average wage as a benefit at retirement. Low-income workers, on the other hand, get 60 percent of their average wage, while workers who averaged the maximum taxable income get 27 percent of their average wage from the system at retirement.
Most recipients of Social Security would not benefit at all from individual accounts, according to Henry Aaron, a resident scholar analyst at the Brookings Institution. Democrat-oriented think tanks will also hammer at what they see as the fiscal irresponsibility of privatizing part of Social Security. If, as expected, the Bush plan calls for earmarking 2 percentage points of the Social Security tax for individual accounts, the system’s actuaries will have to readjust their timeline for insolvency.
In their most recent report, the actuaries projected Social Security payouts will exceed current revenue in 2015, and the trust fund, which includes accumulated surpluses, will be exhausted in 2037. If 2 percentage points of the tax goes into individual accounts, the system’s cash flow will turn negative in 2003 and it will exhaust its trust fund in 2023, according to Robert Greenstein of the Center on Budget and Policy Priorities.
“You can create the illusion that there is some inherent magic in private accounts that will make the long-term problem go away,” Greenstein said. “There isn’t.”
The likely Bush guarantee that no one will do worse under the individual accounts approach has even drawn fire from conservative boosters of privatization.
“If you guarantee benefits, you invite speculation,” said Michael Tanner of the Cato Institute, which pushes total privatization and full exposure to marketplace risk. “It’s the moral hazard problem, like the savings and loan crisis. They’re inviting people to ignore all risks since the system guarantees your return.”
Still, the idea that people will be able to build wealth through individualized Social Security accounts has deep appeal in today’s economic climate, when long periods of stock market stagnation are but distant memories. Andrew Kohut, director of the non-partisan Pew Research Center, said that public opinion on the issue has yet to jell.
“I think it is not an open or shut case either way on this in the polls,” Kohut said.
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