President Bush's approach to tax cutting not too big, not too small puts his rising political capital on the line fending off both Democrats who would whittle it down and Republicans who would expand it. That turns the struggle to cut tax rates into a fight over the president's political future instead of a battle on behalf of American taxpayers.
At the same time, the president appears willing to give up the bully pulpit on Social Security to a commission. But a hands-off approach to Social Security is destined to fail.
The president should first lay out his own vision for reform and then charge the commission narrowly with making more-or-less technical recommendations on how to implement his vision. If instead, the president uses the commission as a kind of ad-hoc drafting committee and gives it a broad, open-ended mandate to define Social Security reform for him, it could end up a disaster.
Remember the last time (1983) we put the fate of Social Security in the hands of a commission of politicians, Wall Street economists and CEOs? President Reagan established the Greenspan commission to make recommendations for legislative changes to solve the Social Security crisis.
But it is now clear that the Greenspan commission gave us a huge back door tax increase that had nothing to do with strengthening Social Security. Instead, it levied a hefty surtax on wages and salaries and created a slush fund for Congress to spend more money without increasing the deficit. Today, deficits have turned into surpluses, and members of both political parties continue the ruse with proclamations that using the Social Security surtax to retire national debt is strengthening Social Security. It does no such thing.
Even that ruse is wearing thin. Alan Greenspan himself and the president's own budget make clear that after 2006, all of the public debt that can practicably be redeemed will have been retired.
Unless the president takes an active hand in shaping the commission, political forces at play and the Establishment personalities involved (the "usual suspects" that surface in the normal Washington order of things) almost guarantee that the Bush commission will end up modeled after the National Commission on Retirement Policy (NCRP), the self-appointed, private-sector commission set up three-and-a-half years ago by the non-profit Center for Strategic and International Study (CSIS). If the president does not personally direct the charter and makeup of his commission, it will be surprising if the members of NCRP don't show up on the Bush commission. And that would be a big mistake.
Don't get me wrong. The members of NCRP are dedicated and honorable Americans. However, the commission's report, The 21st Century Retirement Security Plan, lacks vision and would, if some variant of it were adopted, actually thwart the vision President Bush has already articulated for transforming Social Security into a payroll-tax-financed worker investment and personal retirement program.
There are a number of troubling things about NCRP's plan, but three in particular stand out. First, NCRP would severely limit to two percentage points the amount of the payroll tax that is devoted to personal retirement accounts.
Second, NCRP profoundly errs in excluding workers over the age of 55 (one of its members now talks about excluding those age 50 and older) from being allowed to devote any portion of their payroll taxes to personal accounts. Not only is that actuarially unsound, it is politically risky. I cringed when I heard the president tell Congress last week that the approach he favors would "offer personal savings accounts to younger workers." Social Security reform is no place for age discrimination.
Third, the NCRP plan looks very much like a variant on the plan proposed by former Sen. Patrick Moynihan in a 1998 speech at Harvard University, which establishes only token personal retirement accounts and resorts to a smorgasbord of disguised benefit cuts, retirement age increases, and future tax hikes and/or benefit cuts automatically triggered to maintain the system's "solvency."
We have a once-in-a-century opportunity to overhaul the nation's retirement system, and it should not falter for lack of vision. I hope the president charges his commission to come up with a way for all workers to devote at least half of Social Security payroll taxes to personal accounts within a few years. To the extent that the payroll-tax diversion results in a shortfall of payroll tax revenue to pay current retirees' benefits, the commission should be asked to devise a way for the government to borrow funds directly from the personal retirement accounts to make up the difference, rather than continuing to borrow from the Social Security Trust Fund to retire the national debt as it does now.
After building political capital this year by enacting into law the tax cut he proposed during the campaign, the president will be well-positioned next year to reinvest that capital in a 21st century vision for Social Security reform.