Social Security Battle Calls to Mind Clinton’s Fight Over Health Care

Posted March 1, 2005 at 3:37pm

The Social Security dynamic just keeps getting more and more interesting. For the first time in the Bush presidency, there is a serious fragmentation of GOP unity. [IMGCAP(1)]

This is not like the fight over the patients’ bill of rights, in which the president simply had to convince one key House Republican to change his basic position, thus enabling Bush to win the big one in the House. Nor is it like the Medicare prescription drug debate, in which a revolt by conservatives in the House was matched, in the end, by a united House Republican leadership willing to do anything — literally, anything — to enable the White House to prevail with the help of several apostate Democrats.

On Social Security, by contrast, we have a dozen or more Republican factions joined by freewheeling and free-floating individual lawmakers, all sending up trial balloons or shooting them down on a daily basis.

The latest comes from Rep. Clay Shaw (R-Fla.), who chairs the Ways and Means subcommittee on Social Security. Shaw suggests a compromise that abandons the core of the president’s plan, namely private (or personal) accounts financed by the payroll tax, and instead offers add-on accounts financed by tax credits. This comes after the suggestion by Sen. Lindsey Graham (R-S.C.) to finance personal accounts in part by raising the salary cap on payroll taxes was given a near-green (or bright yellow) light by the White House, before it was rudely rejected by Speaker Dennis Hastert (R-Ill.) and House Majority Leader Tom DeLay (R-Texas).

It wasn’t supposed to turn out like this. The president, it appears, thought that this issue would be relatively easy: Unlike at the start of his first term, Bush now comes to the table re-elected with a clear majority and with increased majorities in both houses.

But obstacles have arisen. First, overhauling Social Security is different from cutting taxes. Moreover, a second term is different from a first. Major upheaval in the program that is the heart of modern American government is never going to be easy. Nervous Republicans — thinking ahead to 2006 by promising constituents that they would never touch Social Security — were not going to leap at the chance to implement private accounts.

And the Democrats were going to start out united on Social Security, unlike on Medicare prescription drugs, because they saw it as a potential springboard to big gains in the midterm elections and as traction to take on the president in other battles. Making matters worse for the president, the Democrats were bound to be skeptical of any offer by President Bush to work with them, given their belief that he shafted them time after time in his first term.

Is there still a deal to be struck? Yes — along the lines of what President Bill Clinton and his economic adviser Gene Sperling floated in 1999. This plan could have worked, with the active involvement of Shaw, among others, until impeachment drove it off the agenda.

The deal starts, as Shaw has suggested, with add-on individual accounts rather than with any raid of the payroll-tax revenues that now go both to pay current Social Security beneficiaries and to finance the deficits in the rest of the government. But it doesn’t stop there.

It also includes a series of steps to bring the Social Security system into balance in the long run, while also reducing its growth curve by enough that it won’t expand sharply as a percentage of GDP, a result that would have crowded out other worthy programs.

The best thing to do, frankly, is not to choose from among the worthy ideas out there, but to take parts of all of them — extending the retirement age; retaining an early-retirement option for less than full benefits; adjusting the benefit formulas; and raising the salary cap. It would not hurt, either, to take some portion of the Social Security reserve fund and invest it collectively in indexed stock funds. And the president’s worthy goal of creating an ownership society could be enacted through plans promoted by former Sen. Bob Kerrey (D-Neb.) and Rep. Tom Petri (R-Wis.).

But here we get to another element that makes this issue so fascinating: timing. Bush can’t spring for a deal like this one now without losing a large share of conservatives who are deeply invested in private accounts paid for out of payroll taxes and who want to see a full-scale transformation of the whole Social Security system. It will take some time, probably a lot of time, to convince them that they have no other option.

Where have we heard this tune before? In 1994, with health reform. Contrary to much conventional wisdom, the Clintons never expected their full-blown plan to pass intact; they anticipated a compromise with moderate Republicans like the late Sen. John Chafee (R.I.). But when they were ready to cut the deal, the Republicans had collectively decided that they were better off killing the whole thing, and that they would pay no political price for doing so without raising an alternative. Of course, the Republicans were correct, and they surged in the 1994 elections.

Maybe the Republican approach this year — of a thousand GOP flowers blooming, and a lot of lawmakers freelancing — will work. But unless the president can do better controlling the timing of events and the emotions of his fellow Republicans in Congress, it will be a very tough battle.

Norman Ornstein is a resident scholar at the American Enterprise Institute.