Contact FreedomWorks

400 North Capitol Street, NW
Suite 765
Washington, DC 20001

  • Toll Free 1.888.564.6273
  • Local 202.783.3870

external_content

    Bush is pulling out the stops for Social Security change

    BY Jon Sawyer
    01/17/2005
    by Jon Sawyer on 1/17/05.

    WASHINGTON - In setting the stage for overhauling Social Security, President George W. Bush is using some moves from the playbook he followed in the run-up to war with Iraq, with a super-coordinated public relations offensive and souped-up claims on the risks of inaction.

    The difference is that this time, unlike with Iraq, those who question Bush's facts and policies are fighting back, hard and early.

    "This is an attempt to undermine and destroy Social Security," Sen. Edward M. Kennedy, D-Mass., said last week, signaling that he intends to lead his party's charge against Bush's plan. "Social Security reform is not going to make it," Kennedy said, "because it doesn't deserve to make it and we're going to fight it."

    Bush has already made clear that in domestic policy, this will be the signature issue of the year and probably of his second term. The administration offensive is already under way, with speeches this past week alone by Vice President Dick Cheney, Treasury Secretary John Snow and Budget Director Joshua Bolten. All made similar claims: The system is unsustainable in its present form, and letting people divert part of their payroll taxes into personal savings accounts promises both greater returns and a down payment on what Bush calls an "ownership society."

    The Social Security Administration, for decades the very model of bland government efficiency, has joined the effort as well, beginning "public service" warnings of future insolvency that some of its own employees have decried as propaganda.

    Bush is leading the charge, most recently at a forum last Tuesday discussing threats to the system. Bush said that unless "Congress has got the willingness to act now," the Social Security system will be "flat bust, bankrupt" by the time workers now in their 20s retire.

    Bush also said that "this system of ours is going to be short, the difference between obligations and money coming in, by about $11 trillion, unless we act. ... That's trillion with a 't'. That's a lot of money, even for this town."

    He said, finally, that if his proposals are adopted, "nothing is going to change" for older people either retired now or close to retirement age. "There is plenty of money in the system today to take care of those who have retired or are near retirement," he said. "The issue is for younger folks."

    Three straightforward statements, presented without qualification, yet each of them dismissed as untrue by Bush's critics.

    The outlines of the counterattack were visible at several forums over the past week, among them one sponsored by the National Committee to Preserve Social Security and Medicare.

    Kenneth Apfel, Social Security commissioner under President Bill Clinton, said that in his view "crisis" was an irresponsible term.

    Over the 75-year period normally assessed in Social Security actuarial projections, the gap between revenues and likely outlays is $3.8 trillion - a big number, to be sure, but far less than the $11 trillion Bush cites. It is just 0.5 percent of projected gross domestic product over that same period.

    "Does that represent a long-term challenge?" Apfel asked. "Of course. Does it represent a crisis? Of course not."

    Measured against total economic activity, Apfel noted, the tax cuts enacted during Bush's first term are three times the size of Social Security's projected 75-year deficit. The new Medicare prescription drug benefit Bush championed is, all by itself, twice the Social Security deficit, he said.

    At the same forum, Brookings Institution economist Henry Aaron said the personal savings accounts Bush favors would actually accelerate Social Security's day of reckoning. If workers were allowed to divert 2 percentage points of their payroll taxes into the personal accounts, for example, that would move up by 15 years the date at which Social Security's trust fund ran dry.

    Financing the new personal accounts would require trillions of dollars in additional government borrowing, Aaron added, for a "transition period" that will likely stretch a half century or more. He said that added borrowing would mean "increased and relentless pressure on government to cut all kinds of government spending - Medicare, Medicaid, all discretionary programs, in fact, because that's where the money is."

    Aaron claimed that it was "at best a half-truth" for Bush to say that people at or near retirement need fear no change.

    "To every elderly person I would say, in the strongest terms, 'You do have a dog in this fight,'" Aaron said.

    Critics are also taking aim on another front, the fact that Bush himself has not yet acknowledged publicly that his proposal isn't just about setting up personal savings account. It's also about making cuts in future benefits, perhaps as much as a third to one half of what they would otherwise be.

    Administration plans were detailed in an e-mail from Peter Wehner, Bush's director of strategic initiatives and a top aide to White House adviser Karl Rove. Wehner's e-mail, a copy of which was leaked to the media, made the case for shifting the calculation of future benefits from a system based on wage indexing to one based on price indexing.

    Retirees of the future would be protected from inflation with price indexing, which is based on the cost of living changes. But the level of starting benefits would no longer rise in the years before retirement, as now, with increases in general wages.

    In his memo, Wehner said radical surgery on indexing was necessary because without it, there's no improvement in Social Security's long-term imbalance. The personal savings accounts, on that score, are irrelevant.

    Enter the potential Republican turncoats, leaders such as ex-House Speaker Newt Gingrich, R-Ga., and ex-vice presidential candidate Jack Kemp. They argue that Bush should press ahead on the new accounts with no offsetting cuts in future benefits because talk of benefit cuts would simply play into the hands of opponents.

    In his e-mail, Wehner says that "in my judgment that's a bad idea. ... If we borrow one to two trillion dollars to cover transition costs for personal savings accounts and make no change to wage indexing, we will have borrowed trillions and will still confront more than $10 trillion in unfunded liabilities. This could easily cause an economic chain reaction: The markets go south, interest rates go up, and the economy stalls out."

    More mainstream congressional leaders - Republicans such as Senate Finance Committee Chair Charles Grassley, R-Iowa; Sen. Lindsey Graham, R-S.C.; and House Ways and Means Chair Bill Thomas, R-Calif. - have suggested that any move toward personal savings accounts will have to include the spinach of offsetting cuts in benefits - and had better have Democratic support as well.

    But on this issue, unlike Iraq, the Democrats so far are standing firm. The AARP, a bastion of support in Bush's drive for the new prescription drug benefit, is now spewing out ads against his stand. Also opposed are moderate party groups such as the Democratic Leadership Council.

    The biggest challenge facing Bush is public opinion that is far from persuaded. An Annenberg National Election Survey released Monday laid it out in stark detail:

    68 percent said their preferred solution to any future Social Security shortfall is raising the current $90,000 cap on income subject to payroll tax, a proposal that Bush has rejected.

    86 percent said they oppose any cuts in benefits for future retirees.

    65 percent said they don't believe Bush's election victory was a mandate for the changes he's now proposing.

    TWO VIEWS ON WHAT THE FUTURE HOLDS

    BUSH: Social Security is headed for bankruptcy

    CRITICS: Talk of "crisis" an exaggeration; modest fixes would ensure promised benefits for decades to come.

    BUSH: Social Security's long-term deficit is $11 trillion.

    CRITICS: The system's own actuaries say the 75-year deficit is $3.8 trillion.

    BUSH: Proposed personal savings accounts will give individuals "ownership" of retirement decisions and increased returns.

    CRITICS: Changes would mean increased risks, less assurance of secure old age.

    Key players in debate

    WHITE HOUSE:
    President George W. Bush: Made diversion of Social Security payroll taxes a theme in both presidential campaigns, says he's prepared to use political capital of his recent victory to make it happen.
    White House team: Main players include Peter Wehner, White House director of strategic initiatives, adviser Charles Blahous and Deputy Assistant for Economic Policy Keith Hennessey. Leaked memo from Wehner says personal accounts alone won't resolve Social Security's long-term shortfall.
    CONGRESS:
    Rep. Bill Thomas, R-Calif., chair of House Ways and Means Committee. Lead committee in House for any reform proposal. Thomas says Bush must take lead by presenting a detailed proposal.
    Sen., Charles Grassley, R-Iowa, chair of Senate Finance Committee. Lead committee in Senate for reform proposals. Grassley says only hope for success is for Congress to take lead in crafting a compromise that can win Democratic votes.
    Sen. Edward M. Kennedy, D-Mass. Likely leader in opposition to Bush. Vows that Democrats will kill any diversion of Social Security payroll taxes "because it doesn't deserve to make it and we're going to fight it."
    Sen. Max Baucus, D-Mont., ranking Democrat on Senate Finance Committee. Baucus was key Democratic supporter of Bush's tax cuts in 2001 but is far more skeptical on payroll tax diversion.
    Sen. Lindsey Graham, R-S.C. Outspoken advocate of personal accounts but also more supportive than most in GOP for raising Social Security taxes on the rich. Potential key figure for bipartisan compromise.
    Former House Speaker Newt Gingrich, R-Ga. Favors biggest possible savings accounts, with no offsetting cuts in benefits. Promoting views with new book and speaking tour.
    Douglas J. Holtz-Eakin, director of Congressional Budget Office. His scoring of costs, especially for transition to system including personal accounts, will be key test of credibility.
    INTEREST GROUPS:
    The Club for Growth, an advocacy group backing lower taxes and smaller government, is building a $15 million war chest to promote personal savings accounts.
    AARP, the biggest interest group representing older Americans, was a key Bush ally in the drive for a Medicare prescription-drug benefit in 2003. This time, AARP has come out strongly against the president's Social Security plan, with a $5 million ad campaign already rolling that says, "If we feel like gambling, we'll play the slots."

    Reporter Jon Sawyer
    E-mail: jsawyer@post-dispatch.com
    Phone: 202-298-6880