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    Social Security debate starts in earnest today

    BY Carolyn Lochhead
    01/11/2005

    Washington -- President Bush will officially open today the Republican version of a domestic policy brawl that will rival in scope, intensity and political difficulty the 1993-94 effort by then-President Bill Clinton to remake the nation's health care system.

    Bush's plan to add private accounts to Social Security, as a leaked White House memo to congressional Republicans put it last week, "will be one of the most important conservative undertakings of modern times. ... The scope and scale of this endeavor are hard to overestimate."

    On the flip side, the enterprise faces all the land mines of Clinton's failed effort: The idea of individual accounts, like universal health care, may sound popular, but the devil is in the details. The financial and technical challenges are enormous.

    Well-heeled lobbying groups such as AARP promise to apply every bit of their firepower to defeat the plan. AARP already has spent $5 million to frame the debate before Bush does, buying ads showing a Social Security card turned on its side like a playing card with the tag phrase, "If we feel like gambling, we'll play the slots."

    Democrats -- even moderates such as California Sen. Dianne Feinstein, who voted for Bush's tax cuts and Medicare reforms -- are almost universally opposed. For liberal Democrats, private accounts are heresy, much as Clinton's health care plan was for Republicans.

    And, as it was for Clinton and Democrats in 1994, the political risk for Bush of changing Social Security is sending tremors through splintered Republican ranks.

    As one observer put it, who needs Democrats when you've got conservative luminaries Newt Gingrich and Jack Kemp warning that Bush's plan is going to destroy the GOP?

    The president is promoting his plan even though Social Security is running a surplus as workers contribute more in payroll taxes than is paid out in benefits to retirees. But that will reverse when the huge Baby Boom generation stops working and starts collecting benefits. The oldest of the Baby Boomers will retire in just four years, and by 2018, payroll taxes no longer will fully cover benefits. Waiting to fix the problem will force much more drastic changes, because there will be no time to slowly accumulate cost savings.

    Bush allies concede the White House got off to a bad start last week with the leak of the memo by Peter Wehner, director of the White House office of strategic initiatives, which defended big future benefit cuts that would accompany private accounts -- a detail Bush never mentioned on the campaign trail.

    "Simply talking about benefit changes in a vacuum is the worst possible way to discuss this," warned David John, the lead analyst on Social Security reform for the conservative Heritage Foundation who meets with the White House.

    Michael Tanner, a longtime privatization advocate for the Cato Institute, agrees the White House fumbled. However, he added, "This is a president that has never lost a fight he wanted to win."

    Bush has yet to lay out specifics, and he will not do so today. Those are to come in late February or March. Today's event is billed as a "conversation on Social Security reform" in Washington in which Bush will lay out his reasons for changes, with citizens of different ages illustrating how private accounts could benefit them.

    Republicans are divided on whether they want a full-blown legislative plan from the White House. Senate Republicans think that doing so would only provide a target for Democrats and that such a complex undertaking should be left to legislators. But House Republicans told Bush last week that they needed him to "take the lead."

    The Democrats' chief line of attack so far is that Social Security does not face a crisis, and the question is debatable enough to sow plenty of public confusion. Much depends on the definition of crisis.

    Even ardent advocates of private accounts concede that Medicare would be a better place to find a crisis. A new prescription drug benefit alone piled on nearly as much unfunded future liability as the entire Social Security shortfall of $10.4 trillion.

    "In essence, you could privatize Social Security tomorrow just by repealing the Medicare drug benefit," said Bruce Bartlett, a Treasury Department official under President George H.W. Bush and now a senior fellow at the National Center for Policy Analysis. "There's a disconnect."

    White House spokesman Scott McClellan said Monday that Bush's first goal would be to form "a common understanding of the problem." The White House also insisted that it wanted "to move forward in as bipartisan a way as possible" and that private accounts should be established without an increase in payroll taxes or benefit cuts for current or soon-to-be retirees.

    But personal accounts, depending on their size, will require at least $1 trillion in transition borrowing to cover benefits for current retirees, as workers divert part of their payroll taxes to their own accounts. The accounts will help "pre-fund" future benefits, but they will not solve the financing shortfall.

    To do so, Bush's 2001 Social Security commission also proposed hitching future benefits to inflation rather than wages, which grow much faster than prices. That change alone would reduce scheduled benefits by as much as 46 percent for workers retiring in 2075.

    Proponents argue that scheduled benefits will have to be cut anyway, because there will not be enough money to pay them. Wehner, the White House official, argued that current "wage indexing" made it impossible for economic growth to bail out Social Security, because as the economy grows, wages grow and benefits increase.

    Not cutting future benefits while diverting $1 trillion or more to private accounts, Wehner warned, would create "serious economic risks."

    But some conservatives, such as former Rep. Jack Kemp, argue that large private accounts should be added without benefit cuts. Democrats, Kemp warned, "will force the Republicans into designing such an unworkable Rube Goldberg device with so much pain and complexity ... the American people will reject it just as they rejected HillaryCare."

    Other conservatives insist that there is no private-account free lunch. To "just blithely ignore the financing issue," Bartlett said, "I think that's frankly insanity."

    Cutting benefits -- even their growth rate -- can be political suicide, leading Gingrich to warn that it could cost Republicans their majority in Congress -- as the 1995 GOP attempt to cut the growth of Medicare benefits helped cost him his job as House speaker.

    Last week, Feinstein said, "I strongly oppose private accounts, which could cost $1 trillion or more and still fail to improve the financial condition of Social Security. Unless I see a proposal that protects the fiscal health of Social Security and does not dramatically increase the national debt, I will continue my opposition."

    Former Clinton domestic policy adviser Bruce Reed, now president of the moderate Democratic Leadership Council, said Democrats who worked with Bush in his first term were in no mood to work with him now.

    Tax-cut politics are just the reverse of the politics of Social Security, he said.

    "Let me put it this way," Reed said. "Bush was able to pick off too many Democrats on tax cuts, perhaps because they mistakenly feared the political impact of that issue. There are very few Democrats who fear George Bush on Social Security. There are more Republicans who are afraid."

    E-mail Carolyn Lochhead at clochhead@sfchronicle.com.

    by Carolyn Lochhead on 1/11/05.