One of the real highlights of presidential year 2000 was the penetrating debate between George W. Bush and Al Gore concerning the future of Social Security. Bush led the way with a positive proposal to give individual workers investment control and true ownership of a significant portion of their Social Security payroll taxes.
He emphasized the point that the ratio of workers to retirees is roughly 3-to-1 and falling. Payroll taxes would eventually have to rise above 18 percent to salvage the program as it's currently structured, and that still would not improve the pitifully low rate of return that workers (especially minorities and women) receive, which averages less than 2 percent.
Gore defended the status quo, saying he thought Social Security was basically sound and could be saved by making a few programmatic reforms and retiring the national debt to make it easier to raise taxes and borrow more money to finance Social Security in the future. He also wanted to extend workers' dependence on government by creating a new means-tested entitlement program of matching grants to workers that the federal government would finance out of general tax revenues.
Workers' contributions to these accounts would be on top of Social Security taxes that they would continue to pay in full. Implicit in everything Gore said were the kinds of benefit cuts and tax increases that liberals such as Sen. Daniel Patrick Moynihan have been promoting for years to return Social Security to a pure pay-as-you-go, tax-and-transfer redistribution program.
Moynihan and those still in Congress who support his approach are more wily than Gore and therefore more of an obstacle to comprehensive reform. In a speech at Harvard University in 1998, Moynihan explained that to save Social Security from being completely overhauled on the basis of personal retirement accounts, it first must be saved from its most ardent supporters - liberals who refuse to consider allowing workers to devote even a limited amount of their Social Security taxes to personal retirement accounts. He reflected back on two years earlier, when in 1996 liberals lost the struggle to maintain welfare as we then knew it by refusing to adapt to the new political environment.
"They looked up and it was gone," he said. It "vanished with scarcely a word of protest."
He swore he never would allow this to happen to Social Security, the "jewel" of the New Deal.
In that speech, Moynihan was straightforward about how he intended to thwart any effort to completely overhaul Social Security on the basis of personal retirement accounts: He would placate supporters of a comprehensive system of personalized accounts by giving them small private accounts amounting to no more than 2 percentage points of the 12.4 percent payroll tax devoted currently to old age and survivors' benefits.
At the same time, he would enact a panoply of benefit cuts (such as cuts in cost-of-living adjustments) and tax increases that would prevent expansion of the private accounts and return the system to a pay-as-you-go, tax-and-transfer redistribution program, not the investment program that Bush envisions. The key to Moynihan's scheme is what amounts to periodic automatic tax increases to keep the system in "actuarial balance," a terrible idea that has been ignored by supporters of private accounts who mistakenly count Moynihan and his like as true allies in this cause.
This is why I am so skeptical of all the talk about a new Social Security commission. The last time we had a Social Security commission comprised of politicians, in 1983, we ended up with a package of tax increases, benefit adjustments and "revenue accelerations" that failed to touch any of the fundamental problems of the Social Security program. It's now up to Congress and the president to do their jobs. We can all grade their achievement at the next election.
The combination of looming budget surpluses and the democratization of stock ownership have created a golden opportunity to restructure Social Security on the basis of personal retirement accounts. Bush should seize this rare chance to accomplish a major policy reform and make Social Security a good deal for all Americans, working or retired. On reforming Social Security, there should be no question of the legitimacy of Bush's mandate for reform. On no other issue did voters support his position over Gore's by a wider margin (60 percent to 30 percent). The time for a commission is past. The time for bipartisan action is now.