A Democrat on Bush's Social Security Team
By EDUARDO PORTER
he intellectual force behind President Bush's plan to overhaul Social Security, the man the president calls his favorite "Democrat economist," is not an economist. He is Robert C. Pozen, a lawyer and mutual fund executive who serves as chairman of MFS Investment Management in Boston.
A registered Democrat, Mr. Pozen donated money to the presidential campaign of Senator John Kerry last year and voted for him on Nov. 2. He was a classmate of Hillary Rodham Clinton at Yale Law School.
But all that has not stopped President Bush from embracing Mr. Pozen's main idea to bring the nation's public pension regime into financial balance: a plan called "progressive indexing" because it would protect the lowest-wage workers from benefit reductions while progressively cutting benefits of higher-earning workers.
Mr. Pozen, who served on Mr. Bush's commission in 2001 that developed initial plans for carving private accounts out of Social Security, has been thrust into the spotlight by Mr. Bush's embrace of his proposal. But Mr. Pozen says his ideas on public pensions are free of politics.
"I consider myself a middle-of-the-road guy who tries to be carefully nonpartisan on this issue," he said. "I believe passionately in Social Security reform."
Opponents of the White House plan say that while Mr. Pozen's ideas may sound progressive, they are far from the Democratic mainstream. Mr. Pozen's proposals are "bad policy," said Senator Max Baucus, the ranking Democrat on the Senate Finance Committee, after the committee's hearings on Social Security this week.
The conservative side of the economics profession lauds progressive indexing. "It is a pretty fair way to approach the problem," said Michael Tanner, who heads the Project on Social Security Choice at the libertarian Cato Institute.
Mr. Tanner pointed to the political wisdom of pegging the plan to a Democratic thinker.
"It will be perceived by some as a benefit cut," he said, "and there is a certain amount of spreading the blame around for that."
To Democrats, however, Mr. Pozen is just providing the president with political cover.
Mr. Pozen "does not speak for the Democratic Party," said Peter Orszag of the Brookings Institution, a liberal research institution. The president drafted Mr. Pozen onto his commission, Mr. Orszag said, only "because they were looking for Democrats that would restrict themselves to be in favor of private accounts."
Mr. Pozen's support for private accounts seems only natural given his long and successful career as a top-level executive in the fund management business.
After serving a stint as a lawyer at the Securities and Exchange Commission, Mr. Pozen joined Fidelity Investments, the financial powerhouse, in 1987. He left Fidelity 14 years later, substantially richer after rising to the position of vice chairman and after being in charge of the firm's big mutual fund group.
"It's fair to say I'm financially independent," Mr. Pozen said.
Since then, he has served on President Bush's commission, was secretary of economic affairs for Gov. Mitt Romney of Massachusetts, a Republican, and taught at Harvard Law School. He took over as chairman of MFS in 2004 after it was battered by financial turmoil and scandal.
At the Senate Finance Committee hearing this week, Mr. Pozen said that while personal accounts were not essential to solving Social Security's financial woes, they were the "dessert" to be offered to American retirees after they had eaten the "spinach" of benefit cuts needed to plug a financial hole estimated by Social Security actuaries - in today's money - at nearly $4 trillion over 75 years.
Mr. Pozen has said that progressive indexing, which would not start until 2012 under his proposal, would close 70 percent of the estimated gap by substantially limiting benefits for higher-income retirees.
Under the current system, the benefits set at retirement are supposed to grow, on average, at the same pace as wages, so that the comparative living standards of retirees, while generally lower than working Americans, do not erode below today's levels.
Mr. Pozen's plan would maintain that schedule only for the bottom 30 percent of the work force - those with average annual earnings up to $25,000.
At the top, those earning more than the taxable limit - expected to be about $113,000 in 2012 when the plan would start, would have future benefits uncoupled from wages and linked instead to inflation, which tends to grow at a pace about 1.1 percentage points slower than wages. In the middle, benefits would be indexed by a mix of prices and wages.
This re-indexing would substantially reduce benefit growth at the top. Today, for example, an American whose earnings are in line with the maximum income taxed by Social Security, currently $90,000, can expect to receive as much as 42 percent of that amount upon retirement. Mr. Pozen's proposal would steadily reduce that to 22 percent by 2061.
Mr. Pozen argued that personal accounts could be layered on top of this plan, eventually providing additional income. But even as the Bush administration has embraced Mr. Pozen's proposal for progressive indexing, it has steered clear of adopting his plan to raise taxes as part of a Social Security overhaul.
Mr. Pozen has been recommending adding private accounts to Social Security since the mid-1990's, which may have been what brought him to the attention of the Bush White House.
"I'm not sure how I got invited to be a member" of the 2001 commission, Mr. Pozen said, "but I had worked on various Social Security projects over the years."
But now he worries that any plan to overhaul Social Security will fail unless it includes both benefit cuts and tax increases.
"As you know," Mr. Pozen said, "both sides have got to win." |
