Once Again Social Security's on the Table





Mr. Goldwein is a Policy Analyst in Fiscal Policy at the New America Foundation and a graduate student at Johns Hopkins University.

After a two-year hiatus, Social Security has made its way back onto the political stage. Both presidential candidates, recognizing that the program is insolvent over the long-run, are claiming that they will confront the system’s $4 trillion long-term shortfall. Senator Barack Obama has made a specific proposal to finance part of the shortfall through a tax on people making over $250,000 a year, while Senator McCain has pledged that he’ll "fight to save the future of Social Security” and “won't leave office without doing everything [he] can to fix [it].” Although neither candidate has made this a central campaign issue, they should be lauded for their willingness to address it. Yet if history is any guide – especially recent history – they will face considerable obstacles in enacting real reform.

Only a few years ago, in 2005, President Bush attempted to address the program’s shortfalls, declaring that “reforming Social Security w[ould] be a priority of [his] administration.” Yet despite a massive publicity campaign, favorable polls on the issue, Republican majorities in both houses of Congress, considerable outside support, and strong ideological commitment to reform, President Bush’s attempt went nowhere.

George W. Bush wasn’t the first President to fail at this endeavor. Presidents Ford, Carter, Reagan, and Clinton each attempted to repair Social Security’s funding situation on multiple occasions, and each experienced political failure. The most famous of these failures was President Reagan’s 1981 attempt to correct Social Security’s finances through early benefit reductions. Reagan’s plan was not well received, to say the least; and after it was unanimously rejected in the Senate, an aide to House Speaker Thomas “Tip” O’Neill declared Social Security to be the “Third Rail of American Politics” – touch it and you will die.

It’s not hard to understand why reform is unpopular: nearly every American pays Social Security taxes and eventually receives benefits, and because the two are linked, people perceive their government checks to be “earned benefits.” (President Roosevelt once explained that “we put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions and unemployment benefits…with those taxes in there no damn politician can ever scrap [the] Social Security program.”) Few people want to see these taxes raised or their benefits “taken away.”

Despite being a third rail, Social Security can be fixed – as proven by the successes under President Carter in 1977 and President Reagan in 1983. These episodes had at least three things in common: acrisis, a commission, and a compromise (“the three Cs”). In 1977, Carter responded to the threat of an unsustainable explosion of benefit levels, used recommendations from the 1974-75 Quadrennial Advisory Council, and gave up many of the more progressive measures in his initial proposal, such as the elimination of the cap on the employer payroll tax. Similarly, the 1983 reforms arrived just four months before the Social Security trust fund would have been depleted (which would have stopped benefit checks from going out on time), it was developed by the bi-partisan “Greenspan Commission” and it required Ronald Reagan to accept tax increases while Democrats accepted benefit cuts.

The Bush reform attempt, more than any past successes and failures, represented a battle of competing pressure groups. On the right, a broad coalition of think tanks, business groups, financial firms, and conservative advocates made up the “privatization movement,” which wanted to transform part, or all, of Social Security program into a system of personal retirement accounts. On the left, a coalition of think tanks, organized labor, senior groups, and liberal advocates made up the “social insurance lobby,” which wanted to maintain the size and structure of Social Security to the greatest extent possible.

President Bush sided with the former group and attempted to utilize the three Cs in order to overcome the efforts of the social insurance lobby.

Early in his presidency, President Bush established the bi-partisan (but presidentially-selected) President’s Commission to Strengthen Social Security “to study and report specific recommendations to preserve Social Security for seniors while building wealth for younger Americans.” He understood that commissions like these helped the president to negotiate with Congress, gave outside pressure groups a seat at the policy table, and served as a way to offer the president political cover.

President Bush also recognized the importance of a crisis as an action-forcing mechanism. For this reason, according to Karl Rove, the President’s push for reform would begin by “heighten[ing] the sense that this is a big issue worthy of immediate consideration."

Crisis-framing was to be just part of President Bush’s broader strategy of “going public,” where the President attempted to circumvent the normal process of negotiating with Congress by taking his message directly to the people. To execute his strategy, the President launched a “60 stops in 60 days” tour in which administration officials and outside policy experts would “crisscross the nation to take the President’s message of strengthening Social Security to the American people.”

In the last week of the tour, President Bush proposed a compromise plan aimed at attracting the support of liberal-leaning voters and politicians. Coined “progressive indexing,” this plan would close most of the long-term deficit by freezing the real (inflation-adjusted) growth of benefits for the wealthiest retirees while maintaining this growth for the poorest retirees and progressively slowing the growth for others.

Ultimately, Congress did not pass this or any other proposal for reform. As the President and the privatization movement pushed for reform, the social insurance lobby pushed back – and hard. Meanwhile, the Democrats united against the President’s agenda, and as a result no bill ever made it to the House or Senate floor. In the end, President Bush and his allies conceded defeat, and left Social Security for another day.

If the next President wants to take on Social Security reform, there are several things he can learn from Bush’s failure.

First, a half-hearted embrace of the Three C’s may not be helpful. Yes, President Bush appointed a commission of eight Republicans and eight Democrats – but all members already supported private accounts, and they were given a number of restrictions such as a requirement that their plan include private accounts and a prohibition on including tax increases. It’s also true that Social Security is insolvent in the long-term, and its funding situation needs to be addressed both to alleviate the fiscal situation and ensure the program’s continued viability. That said, Social Security is currently running the largest surplus in its history, and so crisis rhetoric was clearly overblown. Finally, President Bush’s compromise was a unilateral proposal, rather than a package hammered out with members of Congress.

Secondly, going public is a losing strategy. The more a President promotes a controversial policy to attract favorable news coverage, the more the press will scrutinize his policies, turning to critics as well as allies for background and comments. In this sense, taking your message to the public may be no more effective than increasing speed on a treadmill. Bringing issues out into the public also forces politicians into entrenched positions. As President Bush learned, this makes political consensus and compromise – like that achieved by Reagan and O’Neill in 1983 – far more difficult to reach.

Most importantly, the next president must find a way to manage the increasingly important role of outside pressure groups. Those think tanks and interest groups involved in Social Security policy making have grown exponentially over the last three decades, and create a sort of pressure group deadlock which complicates efforts to alter the status quo. President Bush’s reform efforts were heavily impeded by the AARP, AFL-CIO, Century Foundation, and other groups, who launched multi-million dollar counter-campaigns to thwart his agenda. At the same time, many of the President’s own allies in the privatization movement poisoned the political environment, and limited Bush’s ability to negotiate over some issues to which he seemed open (such as increasing the amount of income subject to the payroll tax).

In some ways, both current presidential candidates have tried to transcend the divide between the privatization movement and the social insurance lobby. John McCain, although a supporter of private accounts, has said he would keep the system intact and create accounts to supplement, rather than replace, traditional benefits. Barack Obama, although a vigorous opponent of privatization, has proposed automatically enrolling workers in IRAs or other retirement savings vehicles.

Despite this, both candidates have already come under attack. Senator Obama’s proposal to create a payroll tax for workers making over $250,000 is getting hit from both the left and the right, with one side chiding him for greatly increasing marginal tax rates, and the other for even suggesting that there is a problem with Social Security. Senator McCain has also come under attack; only days after he called it a "disgrace" that younger workers pay into a broken system, a coalition of groups which helped bring down President Bush’s reform re-launched its efforts. According to the LA Times, is has already ordered thousands of signs saying "Hands Off My Social Security" and "My Social Security Is Not a Disgrace," and will dedicate considerable time and money to influencing the upcoming election.

If Obama or McCain do try to address Social Security after becoming President, attacks will escalate and new obstacles will abound. Bravery for touching the third rail of American politics will not always be rewarded – and as Presidents Ford, Carter, Reagan, Clinton, and Bush all learned, you are very likely to get shocked. The three C’s can help to turn down the voltage, but do not shut off the underlying current. As President Bush once remarked about Social Security, though, “if you don’t touch it, you cannot fix it.” We elect our Presidents to do the hard things – and that’s exactly what we should demand.

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    Dennis Barbour - 7/30/2008

    Sorry about the typo: naive.

    Sometimes my fingers go faster than my brain.


    Dennis Barbour - 7/30/2008

    I'm trying to be as kind as I can about this article, but the basic premise of the insolvency of Social Security is nothing more than moose poop.

    If one does the unbiased research to find out the facts, they would find that the system is not headed to insolvency any time soon. The insolvency assumption is designed to foist upon an unsuspecting public that something needs to be done and that something is usually privatization. As we have all seen recently, privatization and deregulation are not always the best ways to proceed. If this issue could be pushed through the Republican Party could achieve their desire to destroy anything having to do with the New Deal.

    I guess that I am being nieve about the postings and articles on this website, but I had hoped that such postings would provide enlightenment and show how similar situations have been handled in the past, not just another rehash of the obvious political palaver of the day that one may find on all those other websites.


    Brooke Nevils - 7/28/2008

    I'm unfamiliar with this author but he has a masterful grasp of an extremely complex topic, and beautifully uses metaphors to navigate and illuminate the intricate nature of Social Security. "The Three C's can help to turn down the voltage, but do not shut off the underlying current." After reading this, I demand that my President do the hard things!

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