Social Security: What's Missing
By Howard Gleckman
Since President George W. Bush began his push to overhaul Social Security, he has carefully avoided one important subject: How he would cut benefits or raise taxes. For the past two months, he has stumped the country with two messages: Social Security is about to go "broke," and allowing workers to shift some of their payroll taxes into private investment accounts would be a good thing. Trouble is, the personal accounts won't prevent Social Security from going broke. So while Bush may have helped define the problem, he has yet to propose a real solution.
The President has hinted at fixes, of course. But he has never taken ownership of any of them. For instance, he talked in his January State of the Union address about changing the way initial benefits would be calculated -- a step that would slash promised benefits for today's young workers nearly in half. But he attributed the idea to a former Democratic congressman named Tim Penny.
In his Apr. 28 nationally televised speech and press conference, Bush finally began to take ownership of the central issue the nation must confront as it considers what do about Social Security: How much will promised benefits be cut, and how? That's an important step toward a serious solution, but it isn't enough.
Bush did this in code, Washington style. He never actually uttered the words "reducing promised benefits." He never said "under my plan, you won't get what the government has promised you." Instead, in his prepared remarks, he said "I propose a Social Security system in the future where benefits for low-income workers will grow faster than benefits for people who are better off."
This, we are told by the White House spinners, means Bush is willing to accept something called "progressive indexing" -- an idea he likes to say was proposed by a "Democratic economist." The culprit, by the way, is Robert Pozen, who actually is chairman of Boston financial firm MFS Investment Management.
Pozen's idea is important, but painfully complicated. Boiled down to its essence, it would mean workers who earn a lifetime average of $25,000 a year or less in today's dollars would continue to get the benefits they've been promised by Social Security. A 25-year-old making the average U.S. wage of $36,000 would have scheduled benefits cut by about 16%. Those making more than $100,000 would see their basic Social Security benefit cut in half. By 2075, basic benefits for high-wage workers would effectively disappear. This plan would fix about two-thirds of the system's funding shortfall.
Since Bush never actually said he supported Pozen's plan, he has left himself lots of wiggle room. And many serious students of Social Security believe some version of this change belongs in an eventual fix. The question now is: Has Bush done enough to advance the ball in the political debate?
My guess is not yet. Congress is gearing up to try to move a Social Security bill. Both the House Ways & Means Committee and the Senate Finance Committee will try to write their measures by summer. On Apr. 29, the chairman of the House panel, Representative Bill Thomas (R-Calif.) said he would like to draft an ambitious plan that not only fixes Social Security but restructures private pensions and creates new incentives for private savings.
Senate Finance Committee Chairman Charles F. Grassley may move a more modest bill focused on restoring the system's solvency (see BW Online, 4/28/05, "Chuck Grassley's Toughest Task"). But either measure will require substantial reductions in promised benefits. And that will be a tough vote for many Republican lawmakers, especially if Democrats continue their near-unanimous opposition to a Bush-style overhaul.
But because the President didn't lay a specific plan on the table, Democrats will continue to insist that Bush provide more details. And skittish Republicans must now defend major cuts in promised benefits. They'll say, rightly, that the system doesn't have the funds to pay those benefits in any event. But that's a complicated story -- much more complicated than the Democratic charge that Bush is proposing to cut benefits for an average worker by more than $7,600.
It also won't do much to help win backing for the issue Bush really cares about -- those personal accounts. He simply doesn't have the votes in Congress to pass such accounts. And it's hard to see how talking more frankly about benefit cuts will help.
Bush gets credit for putting Social Security on the table. And he gets more credit for moving -- however slowly -- toward a serious discussion of the need for benefit cuts. But he's going to have to put tax hikes more explicitly in the mix and show a willingness to compromise on personal accounts before he has a chance of getting anything done.
Gleckman is a senior correspondent in BusinessWeek's Washington bureau