Much at Stake in Defining Social Security 'Crisis'
The first big policy fight of President Bush's second term has not only been identified, it's already been scheduled. It will be about privatizing Social Security, and it will begin right away, while the president's re-election is still reverberating and other issues can still be held at bay.
The president feels ready to rumble because he hit the issue often in his fall campaign (as did Democratic challenger John Kerry). Mr. Bush feels this empowers him and offers reassurance to the politically hesitant on Capitol Hill. "I campaigned on this," he has said, "and I'm still standing."
To go from standing tall to taking the next step, however, the president needs to convert his own momentum into a national sense of urgency. That's why in his rhetoric, and that of his allies, Social Security is no longer an issue but a crisis. And it is not a crisis to be faced when the trust fund actually runs low, but immediately. As the president told his White House economic conference this month, the "crisis is now."
Everyone understands the notion of crisis, and when the president uses the word, headline writers take note. That's why we have heard our chief executives affix it to everything from energy to housing and educational test scores.
William Kristol, the conservative commentator, took exception to this loose usage of the term a decade ago, specifically objecting to talk of a "health care crisis" in America. In an influential strategy memo he wrote in 1994, Kristol warned of an undertow toward a national health care system and told Republican lawmakers to resist the tide.
Kristol knew well that Bill Clinton had just won the White House while talking of a health care crisis. But by Kristol's lights, America's health care system was the envy of the world and getting better. So what if the percentage of national income spent on health care was climbing? What better to spend money on? And if there were millions uninsured, their needs could be met without funneling everyone into some sort of national plan. Radical and costly change is not needed when fine-tuning will do.
When the Clinton health care plan collapsed in Congress, Kristol could claim some of the credit. Today he is the publisher of The Weekly Standard, a big backer of Social Security reform. Now his "where's the fire?" view from 1994 has been adopted by those on the left whose role corresponds to his on the right. They do not attempt to deny Social Security's shortfall, arguing only that the problem it presents is far from a crisis.
No one can deny that the number of workers paying into the system at the base of the pyramid is declining relative to the number of retirees. In 1950, it was about seven to one. By 2050, it will be less than three to one. But does that constitute an immediate threat of existential proportions?
Down the road, aging baby boomers will steadily drain the surplus in the current fund, and Social Security will need some help to stay afloat. But it's a long road, at least four decades long. Retiring Democrat Sen. Bob Graham of Florida has calculated that the current formula can keep Social Security fully funded until after 2050.
Along the way, the crisis deniers say, the shortfall might be addressed by incremental means: delaying benefits or raising payroll tax rates, or extending the payroll tax beyond the current cutoff ($90,000 in 2005). These are, of course, precisely the palliatives that President Bush has ruled out -- preferring to use the specter of eventual shortfall as an opportunity to privatize.
It is true that the Social Security and Medicare programs together now spend more than they take in. But that's because of the current hemorrhage in Medicare. Indeed, the 2003 Medicare reform pushed by the Bush administration added a prescription drug benefit for seniors with no funding mechanism. That benefit alone now represents a substantially larger unfunded liability over time than Social Security does. Why isn't that a crisis?
Of course, without the heated atmosphere of a crisis, it would be much harder to persuade people to trust some of their Social Security money to the private investment markets. That's especially true for people entering the work force in an era when employers are canceling the traditional "defined benefit" pension programs that older workers have come to count on.
In place of pensions, many younger workers now have 401k plans or the like, which means much of their retirement is already in the hands of the financial markets (as are any private savings they've managed on their own).
So we all have a lot to gain or lose in this policy argument, enough to make it a major focus for the second Bush term on substance. But there are political stakes here, too, just as there were in the health care debate a dozen years ago.
Back in 1994, Kristol was eager to head off not only a national health care system but a whole new era of governmental activism. Republicans were facing a new Democratic president with Democratic majorities in both the Senate and the House. They feared not only a larger welfare state, but a revitalized Democratic coalition that might go on winning elections for years to come.
Today, the roles have reversed. Now it's a Republican president with his party in control of Congress, and the goal is long-term majority status for the GOP. Bush political strategist Karl Rove clearly believes that even partially privatizing Social Security will give the country a new sense of involvement in investing. In theory, at least, that would make most everyone more simpatico with Republican economics and the priorities. We have already seen some of this in the proliferation of self-directed personal retirement accounts like the IRA and the 401k.
So the first fight of the second Bush term affects not only trillions of dollars over time, but also the future fates of the two major political parties. In that sense, perhaps we can all agree that putting it on the table constitutes a kind of crisis in itself.
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