business

Advantage, Clinton

The President's plan for Social Security reform puts the GOP on the defensive

For months, GOP lawmakers taunted President Clinton to stop clucking about Social Security and offer a real reform proposal. In his Jan. 19 State of the Union address, he took the dare--and brazenly outmatched the GOP on its own privatization rhetoric. That left furious Republicans sputtering. But it may give the President and fellow Democrats the chance to take credit for jump-starting the reform process.

For a moment, at least, the bold initiative also succeeded in showcasing the President as chief executive rather than impeachment defendant. But can his "Save Social Security Now" plan survive as policy? It's a clever combination that can placate liberals who hold Roosevelt's legacy sacrosanct while undercutting Republicans who want to replace a chunk of the system with individual private accounts. As for the public, Clinton is promising a painless cure for what has been billed as a national disaster.

Clinton is relying on big and continuous federal surpluses to shore up the system. Then he hopes to boost Social Security's anemic returns by, for the first time, investing a portion of the fund's assets in stocks. And, to spur savings, workers would get up to $400 a year from the government as seed money for individual 401(k)-style investment accounts.

"BELLS AND WHISTLES." Does that make Clinton a closet privatizer? Hardly. He's launching a plan that preserves, rather than remakes, the current system. It can't, however, guarantee that Social Security will not run out of money sometime in the 21st century. "All he's doing is adding bells and whistles," fumes Martin Regalia, chief economist for the U.S. Chamber of Commerce. "Social Security is [still] sliding into the abyss."

There's no question that Clinton's maneuver was politically adroit. Now, Republicans are on the defensive. They have to justify why they favor a fundamental overhaul of the popular system instead of the President's less radical approach. At the same time, they must explain why it's better to use the surplus for a big tax cut instead of setting it aside, as Clinton wants, for Social Security and Medicare. "First, they complain that he didn't put a plan on the table," exults Representative Barney Frank (D-Mass.). "Now, they'll complain he has a plan and they don't like it."

This combination of surprise and preemption is vintage Clinton. "It is just what he did to [Republicans] on the '95 budget deal," says a Hill Democratic aide. "They dared him to submit a balanced budget, and, to their amazement, he did. It didn't add up, but they never could explain that. He was able to spend the whole year saying, `I have a plan, and they don't."'

But can Clinton still pull off that kind of coup? A long impeachment trial could chew up the goodwill needed for reform. And business, most Republicans, and conservative Democrats oppose the idea of Uncle Sam owning a chunk of Corporate America. Count Federal Reserve Chairman Alan Greenspan among the nonfans, too. On Jan. 20, he applauded reserving the surplus for Social Security--but blasted government stock investment as potentially dangerous.

The President's critics also question his basic assumptions about a continuing budget windfall. White House economists project a surplus of about $4.4 trillion over 15 years. That's not out of line with a new Congressional Budget Office forecast of a $2.1 trillion surplus over 10 years. But such long-range estimates can be wildly inaccurate. "To project a surplus over the next 15 years is very brave," says PaineWebber Group Inc. CEO Donald B. Marron.

Those brave projections, however, are key to Clinton's plan to shift $2.7 trillion into the trust fund over 15 years. Up to $675 billion would be invested in stock portfolios, perhaps in index funds. That would give the feds ownership of 4% of Corporate America. But Clintonites insist the government would be a passive investor, insulated from investment decisions and corporate governance.

Even Clinton concedes that his plan can't bring about a permanent fix: It would simply postpone the day when the system can't pay out all its benefits from 2032 to 2055. White House economic aide Gene Sperling promises "tough-minded bipartisan decisions" to close the gap. In other words, tax hikes or benefit cuts would still be necessary. That approach, scoffs a Senate Republican aide, amounts to "dessert now, spinach later."

Still, Clinton has at least put Social Security in play. And, to burnish his place in history, he's eager to see results. That means the Administration may accept a further tilt toward privatization as the proposal slogs through the GOP-controlled Congress. The White House has kept back channels open to both Democrats and Republicans, sending a very Clintonesque message: Everything's negotiable. "It's enough to get the debate going," says Representative Charles Stenholm (D-Tex.). And the debate should be a boisterous one. At a Jan. 21 House Ways & Means Committee hearing, Republicans were set to dig in: Committee Chairman Bill Archer (R-Tex.) vehemently opposes the idea of government stock investments. And even more moderate Democrats, such as Stenholm, have qualms.

COMPLEX TASK. Besides, critics insist, there are no painless cures. The only way to truly fix Social Security, they say, is to cut benefits, hike payroll taxes, or significantly boost returns. Clinton's small-bore stock investments, doubters add, won't produce enough cash. "It's not as simple as adding money and investing in stocks," warns PaineWebber's Marron. "We need an appropriate return."

What's more, Republicans and business leaders are dead set against any plan that might turn the federal government into the world's biggest activist shareholder. For years, investment managers of public pension funds have pushed corporate managements to adopt various social policies--such as protesting South Africa's apartheid system. The New York State and California pension systems have been particularly active and, from the corporate perspective, pesky shareholders. Administration officials insist such concerns are unfounded.

Criticism will only grow in the coming months. But Clinton is likely to push his Social Security plan as if his life depended on it. And in a sense, it does. It is crucial to the President's impeachment-survival strategy to show that he can still do some legislative heavy lifting. Even with its defects, his plan could revive Social Security reform--and boost his troubled Presidency.

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