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Jewish World Review Nov. 29, 1999 /20 Kislev, 5760

Michael Barone

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Econophone

Just saying no

http://www.jewishworldreview.com --
AMID ALL OF THE FLUTTER about last-minute compromising between Bill Clinton and the Republican Congress, few have focused on the most important thing that they did–or, rather, didn't do: fix Social Security. In January, there was a window of opportunity for bipartisan reform of Social Security. Serious members of Congress, from Daniel Patrick Moynihan to Rick Santorum, were coming forward with proposals to allow taxpayers to put part of their 12.4 percent Social Security payroll tax into individual investment accounts that could be invested in relatively low-risk stocks and bonds.

The problem they were addressing was obvious: Social Security benefits are paid out of current revenues, and the falling ratio of workers to retirees means that payroll tax revenues will not be enough to pay Social Security benefits by 2030. Investment accounts are a clear solution. As economist Martin Feldstein has pointed out, the payroll tax tends to rise 1 percent annually, while a portfolio of 60 percent stocks and 40 percent bonds increased 5.5 percent annually between 1946 and 1995 (they have more than doubled in the four years since). And although stocks fluctuate from year to year, over the long run–every 20-year period in U.S. history–they go up.

But Clinton decided to slam the window shut. His January Social Security plan was premised on using current surpluses to pay Social Security years later and to set up a government investment fund to generate more revenue. But the idea of the government's investing huge funds in the stock market was a nonstarter to Republicans and many Democrats like Moynihan. The Clinton plan was not a serious effort at reform; it was an effort to create a 2000 issue for Al Gore, who has opposed individual investment accounts all along. Polls conducted by Gallup, Yankelovich, Mark Penn, ICR, NBC/Wall Street Journal, and Luntz/Siegel have shown 58 percent to 76 percent favoring such proposals. But Gore is evidently more comfortable playing on current recipients' declining fears of benefit cuts than building on younger workers' rising fears that promised benefits won't be payable without an economy-shriveling tax increase.

Welfare state. Next, Social Security became a weapon in the budget wars. House and Senate Republicans passed a tax cut; Clinton charged that it would reduce revenues so that the budget would not be balanced without Social Security payroll tax revenues. He went a step further and proposed "strengthening" Social Security by setting aside payroll tax revenues. But that is only an accounting maneuver, and cutting 2000 spending will have only a marginal effect on 2030; 2030 Social Security benefits will still have to be paid with 2030 revenues, which means either higher payroll taxes or drawing on general revenues. This is a formula for a Western-European-style welfare state, with government gobbling up half the economy, zero job growth, and double-digit unemployment.

House Republicans responded with demagogy of their own. Democratic spending policies, they charged, eat into Social Security payroll tax revenues. It was the same charge Clinton had leveled against their tax cut. But citing some creative, arguably bogus, numbers, they claimed their appropriation bills wouldn't do that. And they promptly began running TV spots in districts of a dozen marginal Democratic lawmakers, accusing them of raiding Social Security. The ads seemed unconvincing and so far have had a negligible impact in national polls. Still, the targeted congressional members squawked loudly; turnabout, it seems, is not fair play.

It is widely believed in Washington that Republicans will lose control of the House in 2000. They must defend 18 open seats, while Democrats have to defend only six, and some Republican incumbents are notoriously weak. But from April to November, Republicans have been trailing by only 42 percent to 40 percent in public polls that ask generically: Which party's congressional candidate would you vote for? It's a question, notes Democratic pollster Peter Hart, that has understated the Republican vote in the 1990s. A Democratic recapture of the House, while possible, is by no means certain, and so both parties play the demagogue on Social Security.

Meanwhile, the chance for serious reform anytime soon seems gone. Bill Clinton slammed shut the window of opportunity, and House Republicans nailed up the shutters. Both are committed to the nostrum that money not spent today can be saved and used for Social Security in 2030. Al Gore is against individual accounts; the first Social Security checks were cut in his father's first term in Congress. Bill Bradley, running to the left, opposes raising the retirement age any further. George W. Bush, who has talked about individual accounts, now says he may not present a detailed proposal. John McCain has said little about the issue; only Steve Forbes, who has been lagging in polls, plugs for reform. One-party control of government would probably doom reform: Most Democrats don't want it, and Republicans are unlikely to go it alone. No one is hurt much by delaying reform–except for the millions denied a chance, for perhaps a decade, perhaps longer, to accumulate wealth in individual investment accounts, and who by 2030 will have to depend on sharp tax increases to get promised benefits.



JWR contributor Michael Barone is a columnist at U.S. News & World Report and the author of the biennialAlmanac of American Politics. Send your comments to him by clicking here.

Up

11/12/99: Money talks, as it should
10/28/99: Mexico votes – for real
10/03/99: Going against type
09/28/99: The unions go public
08/31/99: China's strait flush
08/25/99: The first two contests
08/03/99: Paddling upstream
07/08/99: Taking Hillary seriously
06/22/99: Trying the lawyers
06/07/99: Facts on the ground

©1999, Michael Barone