GOP: No austerity

Posted: Jul 18, 2005 12:00 AM

WASHINGTON -- Last Wednesday Rep. Paul Ryan of Wisconsin entered a Republican Study Committee meeting, including the most aggressively conservative House members, with important news. Ryan reported that Rep. Bill Thomas of California, the powerful, secretive chairman of the House Ways and Means Committee, had agreed this year's Social Security reform should contain neither tax increases nor benefit cuts.
That evoked a sigh of relief among Republicans who have -- without much help from the Bush Administration -- come up with a Social Security plan that establishes personal accounts and ends siphoning payroll tax revenue into general use by the government. Hopes of getting this reform through the House on a party-line vote would be doomed by provisions to raise taxes or cut benefits, as bundles of Republican members would fall away.

 Beyond Social Security, Republicans have relearned an old lesson: They are better off standing on principle instead of inflicting pain on themselves. That argument was won in 1981 by Jack Kemp as a member of the House Republican leadership guiding the Reagan tax cut through Congress. Kemp, who celebrated his 70th birthday last Wednesday, is in the background 24 years later staving off the party's pro-pain brigade.

 Thomas, who likes his cards hidden and his options open, would not confirm to me what Ryan reported him saying. "I don't like to shut doors," said the chairman. While the White House wants to cut benefits by revising the indexing of their growth, the president's agents back the House Republican plan as "a first step."

 Two innovative Republican senators -- Lindsey Graham of South Carolina and Robert Bennett of Utah -- attempted to attract filibuster-breaking Democrats by adding pain to the reform package. Graham would raise taxes on top incomes, and Bennett would reduce benefits to the disadvantage of the rich. No Democrats climbed aboard.

 Graham reacted with a 2.9 percent additional payroll tax on upper incomes that more than wipes out the Bush tax cut. Bennett reacted by completely eliminating personal accounts from his plan. Still no Democrats joined them, though these measures immediately alienated Republicans.

 The experience of the two senators ratified Kemp's plea to Republicans not to negotiate with themselves but to wait for a Democratic offer. The Kemp model is embodied in the current Republican proposal. It was drafted by Lawrence Hunter, former chief economist at the U.S. Chamber of Commerce and Kemp's longtime associate (currently at the Free Enterprise Fund).

 The Hunter plan would transfer the current surplus of Social Security funds derived from the payroll tax into personal accounts for persons under 55 who do not opt out. At first, the personal accounts would be limited to negotiable Treasury bills, but they would be the permanent property of the beneficiary. Since the Social Security surplus now pays for other federal programs, Hunter would increase the federal deficit -- by $87 billion in the first year.

 That is no real problem for conservatives, who correctly view a big deficit as a deterrent on runaway spending. The question has been whether Chairman Thomas and the White House would insist on inflicting pain as part of the package. Now, they all have backed away from provisions that surely would kill the bill in the House (though Thomas still would complicate the issue by adding pension law reform to the package).

 Hunter's approach has been adopted by Republicans seeking Social Security reform without inflicting pain. Most important is House Majority Leader Tom DeLay. Also leading this approach are Sen. Jim DeMint of South Carolina, Sen. John Sununu of New Hampshire, Rep. Jim McCrery of Louisiana, Rep. John Shadegg of Arizona and Rep. Ryan. Even Sen. Graham, who has characterized the Sununu-Ryan approach as seeking "a free lunch," signed onto colleague DeMint's bill as a "first step."

 The momentum was slowed last week when House Speaker Dennis Hastert made clear he would not subject colleagues to two politically difficult votes before the August recess. CAFTA (Central American Free Trade Agreement) goes first, and that means Social Security probably will not come up until September at the earliest. Nevertheless, House Republicans follow the trail blazed long ago by Jack Kemp to provide leadership on Social Security that should have come from the White House.

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