The White House this week kicked off its campaign to allow private accounts within Social Security - an effort that aims at nothing less than a profound alteration of a pillar of US domestic policy. There's no administration-sponsored bill yet, and there probably won't be for some time. A low-key meeting with lawmakers on the subject and some comments by senior officials hardly qualifies as an all-out push for quick passage.
Instead, President Bush appears to be moving cautiously on an issue that many in Washington have long considered hazardous to electoral well-being. Social Security may, or may no longer, be the electrified third rail of American politics. But its partial privatization almost certainly ranks as the most difficult item on the to-do list for Bush's second term.
"If they go ahead and take the issue on, at least we'll get a national debate going, which we've needed for some time," says retired Rep.
Bill Frenzel (R) of Minnesota, who served on a Social Security panel in 2002. As most Democrats point out, Social Security today is not so much one issue, as two. The first is its overall financial condition. Both parties agree something must be done to bolster a program that could fall into the red as early as 2018, given the rising number of retired baby boomers drawing government stipends.
The second is private accounts. Since the campaign of 2000, George W. Bush has urged that workers be allowed to divert some of their Social Security taxes into an account they control. Over the long term private financial markets promise a better return on the money than Social Security promises, say proponents. And the move fits neatly into the administration's theme of pushing America toward an "ownership society," in which citizens have more say in, and responsibility for, long-term financial choices.
That's fine, say opponents, but how will the White House finance the estimated $1 trillion in transition costs to their new system? And what about the fact that private financial markets can go down? Isn't the change just a way to shift financial risk from Uncle Sam to retirees? Wouldn't it change the very nature of the system?
"The purpose of Social Security is to assure basic income. No private account can achieve that goal," writes Brookings Institution senior economist Henry Aaron.
On Monday, the White House invited lawmakers to 1600 Pennsylvania Ave. for a chat about Social Security - its first organized push to counter some of these criticisms. According to participants, Bush said that he ran on the promise to establish private accounts, and that he intended to spend political capital to get the change passed. Democrats present mostly withheld their criticisms. "I'm willing to wait and see the numbers they produce," said Rep. Charles Rangel (D) of New York, ranking minority member of the House Ways and Means Committee.
Meanwhile, White House spokesman Scott McClellan this week publicly acknowledged something obvious: The government would have to borrow large amounts of money to finance any switch to private accounts.
Some private estimates have put the potential borrowed amount at $1 trillion or more. Mr. McClellan declined to specify a figure, but said if the program was not restructured to handle the coming wave of baby-boom retirees, additional costs could hit $10 trillion. "There will be some upfront transition financing that will be needed to move towards a better system," said McClellan.
The word "transition" is key here, say proponents. Theoretically, in the long run it should not cost the US any more to shift to a system in which a small percentage of Social Security payroll taxes, 2 to 3 percent, are deposited in private retirement accounts. Since the Social Security checks of today's retirees are financed by current taxes, siphoning off 2 to 3 percent would indeed cause a shortfall. The US would have to borrow more to make the system's ends meet.
But those younger workers busy building their private accounts would be getting smaller benefits from the US when they retire, because they are keeping control of some of their dollars. Uncle Sam's liabilities would thus be lower. In theory, when the shift ends decades from now, the net cost would be zero.
"Because [private accounts] would earn higher returns than the current system can afford to pay, they could preserve retirement benefits at a sustainable level and reduce the unfunded promises imposed on future generations," writes Heritage Foundation analyst David John.
The problem is that establishing the accounts would be politically so difficult that the White House might have to accept certain costs, such as a smaller reduction in future benefits for those with private accounts, that could complicate the transition. Instead of a long-term cost of zero, the cost could end up in the trillions.
And what about the possibility of loss? If the stock market dropped, would the US just shrug at the bad fortune of those about to retire? Would it soften the blow? "Those who depend on Social Security for their survival are the least qualified to understand the complexities of the market and are most likely to lose money as a result of poor investments," says Silvia Borzutzky, a political scientist at Carnegie Mellon University.