Mandate '04

Jack Kemp
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Posted: May 19, 2003 12:00 AM

As the Democratic presidential candidates begin to roll out their "big ideas" for the 2004 campaign, it is not too early for the Republicans and the White House to begin thinking about what initiatives they will seek a mandate for in a second term. For the sake of the American people, I hope President Bush seeks a mandate on two issues the Democrats won't touch: Social Security and tax reform. A Mandate for Economic Prosperity and Retirement Security would put Republicans in the position of being the reform party of 2004.

On tax reform, the president is off to an auspicious beginning, and it wouldn't take much to consolidate into a comprehensive package the principles on which last year's tax bill and this year's soon-to-be enacted tax bill were based: simplification and fewer tax rates, neutral treatment of all sources of income, elimination of double taxation, transparency and stability. On Social Security, I hope the president offers the American people a comprehensive reform proposal based on personal retirement accounts to help create a shareholder democracy.

The debate on Social Security, as well as some Republicans' hesitancy to embrace comprehensive tax reform, exposes a profound difference of opinion within the conservative movement over the question of government borrowing. One wing of the conservative movement continues to worship at the altar of fiscal austerity, placing debt and deficits uber alles. We see its pernicious effects currently obstructing congressional efforts to enact a modest package of growth-enhancing tax reforms. The austerity wing's limited vision of Social Security "reform" consists of allowing workers to place a meager 2 percentage points of their payroll taxes into personal retirement accounts, and it insists on paying for the transition costs of switching from a complete pay-as-you-go retirement system to a partial pay-go system by cutting Social Security benefits.

Read my lips: Cutting Social Security benefits is not a strategy for re-election; it is political suicide. If the austerity wing of the president's party talks him into proposing anything on Social Security that fails to give a guarantee to every worker in America that he or she will not receive any less in retirement income than they are guaranteed under Social Security today, the Democrats won't need an agenda to win. All they will need is a warm body on the ballot.

The growth wing of the conservative movement - the position in which you find this unreconstructed supply-sider firmly planted - does not fear government borrowing if the debt is judiciously incurred and productively employed. That's why the growth-and-prosperity wing of the Republican Party is urging the president to pursue a mandate that would seek voters' approval to borrow sufficient funds to simultaneously overhaul the tax code and allow workers immediately to begin devoting 5 to 6 percentage points of their payroll taxes to individual personal retirement accounts.

The Institute for Policy Innovation in Lewisville, Texas, is a hotbed of intellectual activity developing these ideas. In one recent IPI study, Lawrence Hunter and Steven Conover demonstrated how it is possible to stabilize the national debt burden right where it is, at about one-third of national income, and still borrow additional funds each year sufficient to overhaul the tax code and to convert Social Security into a payroll-tax-financed worker-investment retirement program.

The study concluded that properly conceived tax reform would raise economic growth about one-half percentage point a year (raising long-run annual growth from around 3.2 percent to 3.7 percent), which would make it possible for workers to immediately place 6 percentage points of their payroll taxes into personal retirement accounts. The government could safely borrow the transition costs each year, which would amount to average annual borrowing of 1.2 percent of GDP between now and 2035 to ensure no retirees receive less in retirement income that they are currently promised under Social Security. The nation could keep its debt burden within a few percentage points of today's level for the next 25 years, after which it would begin to fall precipitously, instead of skyrocketing as it is slated to do under existing law.

In a forthcoming IPI study, Social Security expert Peter Ferrara follows up on these same ideas. He concludes that the best approach would be "a progressive reform plan with no benefit cuts or tax increase, offering a 5 to 6 percentage point personal account, and more for lower income workers." He also puts his finger on the struggle under way for the heart and mind of the president when he quotes a Republican congressional staffer at the center of discussions regarding new personal account reform bills as saying, "Personal account reform proposals would be more popular the smaller the personal accounts and the larger the Social Security benefit cuts."

There will be no Republican candidates challenging Bush in the presidential primaries next year, but there will be an interesting clash of ideas within the Republican Party. How this "mandate primary" turns out will determine whether the president runs in pursuit of an optimistic, progressive, forward-looking mandate based on economic growth and prosperity or whether he allows his thinking to be shaped by a crimped and cramped conservatism of the past that obsesses over deficits and scales back its vision of tomorrow out of fear and timidity today.