Worse Than No Reform
The bad news is, Democrats do have ideas for Social Security.
BY BRENDAN MINITER
Tuesday, March 29, 2005 12:01 a.m.
House Democratic Whip Steny Hoyer dropped by our offices recently to talk about, among other things, Social Security. This was no dry, by-the-numbers discussion. Mr. Hoyer clearly feels passionate about the issue and fully understands that what's at stake is not how large grandma's check will be, but how the welfare state will be organized. In the process of making his arguments, he unwittingly demonstrated that the claim that Democrats have no reform ideas is flat wrong. By the end of the meeting it was clear that if Republicans fail to pass Social Security reform this year, they will deserve to lose control of Congress and perhaps even the presidency.
First what ideas do Democrats have for reforming Social Security? Mr. Hoyer wouldn't put a clear plan on the table, saying that in this fight the side that puts out a detailed plan first will likely lose. President Bush is "tanking" on this issue, he said, and Democrats aren't going to help him out by giving Americans something else to focus on and pick apart. He did say that Mr. Bush should consider as a model for compromise the deal President Reagan struck in 1983 to raise the retirement age. He also noted that there are several other options, chief among them raising the "wage cap" (so that Social Security taxes would be due on income above $90,000) and repealing Mr. Bush's tax cuts for the so-called wealthy.
Mr. Hoyer also made a concession first reported last week in our premium e-mail newsletter Political Dairy (subscribe here). The No. 2 Democrat in the House said that he is in favor of private accounts as an "add-on" to Social Security. He also said that Social Security trustees--one of whom is Labor Secretary Elaine Chao--should be given the authority to invest Social Security funds in the stock market and other high-yield financial instruments. Instead of personal accounts, Mr. Hoyer is envisioning public accounts controlled by the government and used to raise funds for Social Security, much the way Calpers invests funds to pay for California state employee pensions. More on this in a minute.
Mr. Hoyer isn't the first to talk about add-on accounts. Republican Clay Shaw--a chief architect of welfare reform in 1996--has an add-on plan on the table that would put 4% of a worker's pay or $1,000, whichever is smaller, into a personal account each year. The account would then be used to help defray the cost of Social Security down the road. (For more information on Mr. Shaw's plan click here.) Mr. Hoyer dodged the question of whether he supports Mr. Shaw's plan. But by supporting add-on accounts and calling for Social Security trustees to be able to invest in the market, Mr. Hoyer has given up the argument that the stock market is too risky to invest in. If it's good enough for 401(k)s, public accounts and private add-on accounts, why isn't the stock market good enough for the rest of Social Security?
That's an opening Republicans might try driving a reform plan through. But in granting this opening, Mr. Hoyer has revealed a broader political strategy. Without control of Congress or the White House, the left has been looking for a new power source, and they may have found one in large pension funds. The AFL-CIO and other labor unions are testing the waters by publicly protesting against Charles Schwab, Edward Jones and other investment houses in hopes of scaring them away from the Social Security debate. The Labor Department is now looking into accusations that Big Labor is threatening to pull pension funds from investment houses that refuse to play along. Making such a threat may violate a union's fiduciary responsibility.
Regardless of what the Labor Department finds, this is where Republicans might want to start considering what will happen if they do not pass Social Security reform this year. One popular theory in Washington is that President Bush has firmly implanted the idea of reform in the national consciousness, but that it now must take root there over the next four years or so--into the next president's term--before it can be enacted into law. There's even a sound bite: President Hillary Clinton will sign Social Security reform into law, just as Bill Clinton signed welfare reform.
The symmetry is appealing, but misleading. The danger in losing the Social Security fight this year isn't that President Bush's reform agenda will die along with it, but rather that it will live on. President Clinton had to be brought to welfare reform kicking and screaming. But President Hillary or another Democrat will likely be more shrewd and embrace reform. Doing so would allow Democrats to infuse those reforms with Mr. Hoyer's ideas of using the government to invest funds in the stock market. We'll likely get a mix of higher taxes, reduced benefits for some, and "diversified risk" with publicly invested money. It will sound like a middle-of-the-road compromise. But if it comes to pass, it will give the secretary of labor and the other trustees a new tool to influence financial markets for political reasons.
Republicans didn't have to let this genie out of the bottle. But they were sent to Washington to make fundamental changes to the welfare state, and now they have a limited time to get their ownership society wish. If they miss this opportunity, it may turn out that all Republicans will have succeeded at doing is setting the stage for a massive expansion of the federal government.
Mr. Miniter is assistant editor of OpinionJournal.com. His column appears Tuesdays. |
