A Time for Partisanship
On Social Security, Bush shouldn't negotiate with no-account Democrats.
WSJ.com OpinionJournal
BY BRENDAN MINITER
Wednesday, February 2, 2005 12:01 a.m.
Tonight President Bush is likely to use the State of the Union address tonight to make a big push for Social Security reform. He will follow this up with several campaign-style events around the country. The aim is to show Democrats--and more than a few Republicans--that reforming Social Security has popular bipartisan support. It's a smart idea, because inside Washington the conventional wisdom is that Mr. Bush needs to embrace a "bipartisan" solution. The hard reality is that Mr. Bush will have to be "partisan," because the Democratic Party is not negotiating in good faith.
What we have is a two-party system with one party--because of its liberal base and the temperament of its leaders--incapable of taking an honest look at a serious problem facing the nation. Democrats will seek concessions in the name of compromise as a Beltway chorus sings the praises and necessity of bipartisanship. But the Democrats--or at least their leaders inside the Beltway--aim to block the creation of personal retirement accounts, the centerpiece of any meaningful reform.
Despite the claims that Social Security has been a successful system up until now, the truth is that it offers Americans a lousy rate of return on the 12.4% of their income (including the employers' portion of the Social Security tax) paid into the system. And demographic trends will make matters worse.
By 2030 there will be barely two workers for every retiree drawing a Social Security check. That's a system that cannot long financially sustain itself. The way out is to take advantage of what Albert Einstein called the eight wonder of the world: compound interest. By creating personal retirement accounts--allowing Americans to steer a sizable portion of their Social Security taxes into a 401(k)-type account, where individuals can pick which mutual funds to place their money in--Social Security can start harnessing the power of the economy.
In response to this idea, Democrats and their surrogates (and some Republicans) offer either scare tactics of alternatives that would fundamentally undermine personal retirement accounts. House Minority Leader Nancy Pelosi and others claim that the stock market is simply too risky to invest in. Buy judging by the number of 401(k)s out there, no one really believes it.
Other approaches are more sly. AARP executive director Bill Novelli dropped by The Wall Street Journal's offices last week. One of the ideas he and his colleagues mentioned--(without endorsing it) was that instead of having personal retirement accounts, the government might set up one large account, in which the government would invest something like 15% of Social Security money. That offers the benefit of collective risk, Mr. Novelli said--but it would leave retirement funds under political control, which is essentially the system we have now.
Others propose allowing only small amounts of money to go into personal retirement accounts, say 1% of income. For the working poor, this would effectively take away any chance a personal retirement account has of amassing enough wealth to make it worthwhile. For the people on the edge of poverty, servicing fees for the account alone would eat up a significant portion of any gain. Again, strangling this baby before it has a chance to climb out of the crib.
This leaves Mr. Bush with the problem of having to overcome the special interests with the loudest voices inside the Democratic Party--seniors, labor unions (which benefit when large bureaucracies control individuals money) and politicians looking to gain by demagoguing an issue. Democrats like the late Daniel Patrick Moynihan, who offered serious ideas on reform, are gone or have gone into hiding. Former senator Bob Kerrey lamented this fact in The Wall Street Journal yesterday and said it will prove to be a mistake for the party. I'd go further and say that unless the Democrats start to offer serious ideas, the party will help to cement a long-lasting Republican majority as the GOP saves Social Security on its own.
But until those serious Democrats return, President Bush is left with the reality that the only way to save Social Security is to pursue a partisan bill, while continuing to take his message to the people. By stirring up the voters, the president may get as many as two dozen Democrats to come along in the House and the half dozen he needs in the Senate. But he'll get that only if the doesn't cede ground on the fundamental reform--large personal accounts, funded and controlled by individuals. Partisanship gets a bad wrap, but sometimes it's essential.
Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays.
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