Reforming Social Security - a dangerous game
How privatization ideals could jeopardize Republicans' bid to win the
All six Republican presidential candidates have touched what is often called the third rail of American politics - the Social Security system.Skip to next paragraph
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Five, including top contender George W. Bush, favor a change incorporating some form of personal retirement accounts, that is, a degree of privatization.
The exception, Gary Bauer, wants instead to return the current Social Security surpluses to the citizenry in the form of tax cuts. That position differs sharply from the Republican congressional leadership, which claims to have "saved" Social Security by protecting those surpluses.
Democrats are quietly jubilant. They recall how easily Lyndon Johnson beat Barry Goldwater in 1964 after Mr. Goldwater talked of making Social Security voluntary.
Defenders of the present system can hardly wait for the campaign next year. They expect the Democratic candidate, whether Vice President Al Gore or former Sen. Bill Bradley, to uphold Social Security as the great caretaker of seniors and attack his Republican opponent as wanting to damage the system.
"It will hand the Democratic nominee a very big issue," says economist Dean Baker, who has just co-authored a book entitled "Social Security: The Phony Crisis" (University of Chicago Press). "I wouldn't want to be on the other side of this."
Two years ago, many liberal defenders of Social Security felt defensive. The advocates of privatization, such as the well-financed, libertarian CATO Institute and some Wall Street executives, were highly successful in persuading the public that the system was badly failing and needed overhaul.
"They scared a lot of people," says Mr. Baker of the Preamble Center in Washington.
Further, privatization proponents argued that Social Security offered a poor return to most Americans and that private retirement accounts invested in stocks and bonds would provide a much huskier pension.
Many Social Security supporters feared cuts in the system and at least minor privatization.
That's changed. Washington observers now say Congress will not alter Social Security in 2000.
"People who saw the risks have done a lot to educate the public," says Alicia Munnell, director of the Center for Retirement Research at Boston College. "They have had an impact."
The issue could come alive in 2001, though, especially if Mr. Bush moves to the White House. Last month he told NBC Television's Meet the Press that he would consider raising the age of eligibility for full Social Security pensions to ensure its long-term solvency. And a top economic adviser, former Federal Reserve governor Lawrence Lindsey, says Bush's plan "will certainly involve privatization or personal accounts."
Those words may haunt him.
"Social Security is going to be one of the controversial issues in the fall election," predicts David Roach, a spokesman in Washington for the National Committee to Preserve Social Security and Medicare.
At least three factors could tempt Bush to backtrack or fuzz his position on Social Security.
1. The Social Security retirement age is already set to go up from 65 to 67. The shift will be implemented gradually, beginning next year. Pollsters say few Americans realize this change, set in 1983, is imminent.
Those born in 1938 will not be eligible for full retirement benefits until they reach 65 plus two months. Their benefits will be cut if they retire early at 62.
Any further delay in the retirement age would be unpopular, especially among those engaged in physical labor.
2. When the Social Security Administration trustees issue their annual report in early spring, it will likely again postpone the date when Social Security revenues cannot fully cover pension benefits. That date is now set at 2034.
With the robust economy continuing, Baker expects the trustees to advance the date to 2040.
The crisis will fade.
3. The thesis that private accounts would provide a glorious retirement income is under fire from high-powered economists.
John Mueller, who was chief economist of Republican Rep. Jack Kemp during the 1980s, says no age group now alive would benefit from full or partial privatization. He debated CATO's Michael Tanner on the topic in Concord, N.H., last Wednesday.
Peter Diamond, an expert at the Massachusetts Institute of Technology, in Cambridge, reckons that because of today's extreme stock prices, the historic return of 7 percent after inflation cannot be justified in coming decades - unless prices first plummet by one-third, adjusted for inflation.
Such a drop, if it occurs, would likely end the privatization debate.
(c) Copyright 1999. The Christian Science Publishing Society