Social Security Security

No one who has followed President Clinton's career for decades should have been surprised by his visionary State of the Union speech. Or by its richness in detail, statistics, and human touches.

Bill Clinton has long since adapted for the cyber-age the rhetorical skills that made Teddy Roosevelt, William Jennings Bryan, FDR, and Ronald Reagan such consummate political salesmen.

Now for the hard part.

Members of Congress and ordinary citizens need to be realistic about what items on his long wish-list of proposals are doable and affordable.

They can leave to historians the always contentious question of which achievements claimed by any leader truly were due to his or her efforts, and which were the result of economic, demographic, social, or technological trends.

In this space today we'd like to examine Mr. Clinton's proposals for Social Security reforms. We do so with the aim of finding compromise ground on which Republicans and Democrats in Congress can agree.

We will turn to other parts of the Clinton agenda - notably education, community life, trade, defense, and tobacco control - in coming days.

What is the surplus?

Listening to the president, one might conclude that the government, through unprecedented thrift, will pile up more than $4 trillion in surpluses in the next 15 years. Not so.

Most of those trillions will automatically accrue from the Social Security and Medicare payroll withholding of millions of working Americans.

Yes, the federal government has helped. President and Congress have shrunk expenditures and increased revenues so they won't have to borrow from the Social Security kitty to run government programs.

And, yes, the baby boom itself has helped. Its huge tide of productive workers has both produced more SS payroll tax revenues and stimulated the economy (and income and sales tax revenues) with its spending and investing for retirement.

So it is fitting that a big chunk of the $4-trillion plus be used for SS and Medicare rescue. But how?

Mr. Clinton has picked up two proposals - one from SS traditionalists on the left, one from privatizers on the right. (1) He would take $2.8 trillion of the total to bolster SS; and then invest about a quarter of that, some $700 billion, in the stock market, under a central-bank-like board. (2) He would create optional individual Universal Service Accounts modeled on 401(k) retirement accounts. The government would match worker contributions, with limits based on pay scales.

Problems

Plan 1 has drawbacks: (a) Putting $700 billion into the stock market dilutes the accounts of other investors, notably holders of 401(k)s and company pensions. (b) It does nothing to increase national savings and investment capital. (c) It creates creeping federal control over private business. (d) Its backers want the money invested mainly in index funds. That would further skew a market already overvaluing big firms and undervaluing smaller ones. (e) Its investment policies couldn't differentiate between the riskier growth stock needs of younger workers and the capital preservation needs of older workers.

Plan 2 takes care of many of these problems. But it should be scaled back somewhat at the start so as not to distort the private market unduly. And also so as not to require constant tinkering as the retirement population fluctuates over time.

Compromise

Retiring Senator Moynihan set forth a blueprint last year that we found sensible. Senators Breaux (D) of Louisiana and Gregg (R) of New Hampshire have added detail. Basically their proposal would put 2 percent (one-sixth of the current 12.4 percent payroll tax) into mandatory private pension accounts. Each worker would be able to select from a range of carefully safeguarded investment options. Upon retirement each account would buy a lifetime annuity to add to the SS safety-net base that every citizen would still be entitled to.

Such plans also need work. Adjustment is needed for women who spend less time in SS-credited work.

But clearly compromise can be found between Clinton's partially marketized approach and this bipartisan partially marketized plan. The time has come to just do it.