Social Security Reform: Ready For Prime Time?

1998 is a make-or-break year for Clinton to devise a viable plan

It's the perfect task for the first baby boomer President. In his Jan. 27 State of the Union Address, President Clinton will launch a national debate on how to fix the anticipated $10 trillion gap in Social Security's long-term finances. Aides say Clinton has long dreamed of such an overhaul--needed to pay for the retirement of his 82-million-member generation--a crowning achievement for his Presidency.

But dreaming of a Social Security deal will be far easier than winning one. Once the centerpiece of Franklin D. Roosevelt's New Deal, Social Security has provoked bloody political battles ever since. Even now, a debate rages in the White House over how to approach the issue. One camp, led by Treasury Secretary Robert E. Rubin, insists Social Security should remain a government-run social insurance program, to be repaired mainly by shaving benefits and raising payroll taxes. The other camp, led by Rubin's deputy, Lawrence H. Summers, is pushing structural changes--including privatizing at least a portion of the system into individual investment accounts.

Meanwhile, House Speaker Newt Gingrich says Social Security is also a top Republican priority this year. The House Speaker supports putting as much as 40% of revenues collected from the 12.4% payroll tax into 401(k)-style private accounts. He now backs the idea of a bipartisan commission to study the options and build public support.

Neither Gingrich nor Clinton, however, contemplates any real action until after this fall's midterm elections. And neither one wants Social Security to become a issue in the Presidential election two years later. That leaves only 1999 as the window of opportunity to pass a law, making 1998 a crucial year for building consensus on Social Security.

WAITING. The effort is unlikely to catch fire until Clinton proposes a plan. "The options have all been studied to death," says a Senate Democratic aide. "What's missing is Presidential leadership." Adds Alicia H. Munnell, a former member of Clinton's Council of Economic Advisers: "The American people are not going to pay attention until the President puts his plan on the table."

But it's not clear how Clinton can craft a plan that will pass a pro-privatization GOP Congress without igniting a revolt from his own party's left wing. Liberal Democrats will strongly resist any plan that diverts payroll taxes away from the government fund, more often favoring a hike in the payroll tax on high-end earners. Senator Daniel Patrick Moynihan of New York, the most forceful Democratic advocate of Social Security, insists that the system can be kept solvent by reducing the annual inflation adjustments to benefits.

Clinton will probably come down somewhere in the middle, keeping a basic Social Security pension but allowing or requiring workers to invest some tax money privately. "Given that we have to work with the Republicans, it's hard to see a plan passing without some individual-account piece," admits a Clinton adviser. Seniors' groups and labor would fight this, but the public seems to be open to the idea: In a poll commissioned by the centrist Democratic Leadership Council, 75% of respondents approved of having a private option.

No matter what the proposal, Social Security reform will require grinding negotiations. Private accounts may be costly and might require higher payroll taxes. And any deal will necessitate benefit cuts, most likely disguised as increases in the retirement age or slower cost-of-living hikes. "If reform were as painless as Gingrich says, both parties would have plans on the table already," says Bradley D. Belt, director of the National Commission on Retirement Policy. Still, the prospect of federal budget surpluses starting next year offers some hope that funds will be available to ease the job. That could even help make Clinton's dream of Social Security reform a reality.

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