Edward Berkowitz: Proposed Major Overhauls of Social Programs Usually Fail

Edward Berkowitz, in the San Jose Mercury News (3-13-05):

[Mr. Berkowitz teaches history and public policy at George Washington University. A paperback edition of his biography of former Social Security Commissioner Robert Ball will appear this summer. ]

... Though they sometimes have led to more modest reforms, high-profile domestic initiatives have not fared well in the past 35 years. President Nixon failed at welfare reform, and Congress rejected President Clinton's ambitious national health insurance program.

Nor is the record of politicians who have proposed major changes in Social Security particularly encouraging to Bush.

Alfred Landon, the Republican candidate in 1936, lost in a landslide, in part because he called Social Security ``unjust, unworkable, stupidly drafted and wastefully financed.''

Barry Goldwater, who raised the possibility of making Social Security a voluntary program for workers and employers in the 1964 election, suffered a similarly humiliating defeat.

When President Reagan learned of the possibility of reducing early retirement benefits, he endorsed the idea, saying, ``I've been warning since 1964 that Social Security was heading toward bankruptcy.'' The Republican-controlled Senate promptly passed a unanimous resolution condemning the proposal.

In the initial going, Bush is finding that Democrats and Republicans alike appear reluctant to make changes in a 70-year-old program that in 2003 collected money from 154 million people and paid more than $470 billion to 47 million. It is a program with many attractive features, such as a benefits formula under which poorer people get a higher rate of return on their contributions than richer people, yet it also ensures that people who contribute more receive more from the program.

Such features as survivors' benefits that go to the dependents of workers who die before retirement, and disability benefits for certain people forced to drop out of the labor force, reinforce this blend of adequacy and equity.

Given the program's widespread support, Bush understands that changing it is politically delicate. Yet, in fact, Social Security has been widely debated in the past. Looking back, we can see its history has three distinct eras.

From 1935 to 1950, the program covered only about half of the people in the labor force. In 1950, more than twice as many people were on the state welfare rolls as were receiving retirement benefits from the federal government under Social Security. The average monthly welfare benefit was $42 in 1949; the average Social Security benefit was $25.

Between 1950 and 1972, the program enjoyed considerable success. Rising wages and low unemployment meant that more money flowed into the Social Security coffers, so Congress could raise benefits without substantial increases in the payroll tax rates. As an adviser to President Johnson noted, economic growth produced the ``miracle'' that made it possible to expand the system without raising the tax rate or ``impairing the actuarial soundness of the system.''

But in 1972 Congress changed this congenial system. In a sweeping action, it raised Social Security benefits by a whopping 20 percent and introduced a feature that would raise future benefit levels by the rate of inflation, a feature known as the COLA, or cost of living adjustment. In 1973 Congress passed one more traditional benefit increase, and then the COLAs took over.

As it happened, the introduction of this new system coincided with major economic disruptions -- high unemployment, galloping inflation and rising disability rates. That meant fewer people were paying into the program, yet the amount being paid out was increasing because of the COLAs and the rise in the disability rolls. In June 1974 the Social Security Administration announced a ``long-range actuarial imbalance.'' The Social Security financing issue had arrived.

Conservatives took aim. As Treasury Secretary William Simon told President Ford at the end of 1975, Social Security had come under ``persistent attack in the news media for its inequities, its financial uncertainties and its complexities.'' Suddenly features that had been extolled in the golden period from 1950 to 1972 came to be viewed more critically. Did the program treat women fairly? Did the program's problems stem from the way it mixed welfare and insurance elements?

Although President Carter did his best to shore things up in 1977, problems reappeared as the economy once again disintegrated. During Ronald Reagan's first year in office, in 1981, the possibility existed that the program would be unable to pay full benefits by the middle of 1983. That situation spawned a crisis that, despite efforts by both sides to exploit the situation for political benefit, forced Congress to act.

The result was 1983 legislation in which both sides made sacrifices in the interest of saving and strengthening the program. Democrats agreed to a six-month delay in the cost of living adjustments. Republicans agreed to let Social Security's basic structure remain in place and to stop harping on the program's long-term insolvency.

The 1983 amendments, enthusiastically signed by President Reagan, converted him from a critic to a supporter of Social Security. In a sense, he now owned a piece of it. For a time, Social Security financing was taken off the table.

A little more than a decade later, however, government officials reported that, once again, the program faced a long-term deficit. The deficit did not stem from the costs that would be imposed by the retirement of most of the baby boom generation from 2015 to 2022; that had already been figured into the calculations in 1983. Instead, more complicated factors, such as assumptions about lower real wages and higher disability rates in the future, produced the projected deficit.

Amid a general sense that the program could never be fixed, new discussions began. The roaring stock market of the 1990s legitimized the notion of increasing the returns on Social Security taxes by investing some of the money in the stock market, perhaps through private accounts.

Bush, one of the proponents of those private accounts, faces a situation much different from what Reagan faced in 1983. For Reagan the problem was immediate; there was little time to re-examine Social Security's philosophical foundations and make substantial changes. Bush does not have the same time constraints, and he seeks nothing less than a fundamental change in Social Security.

In fact, Bush wants to convince younger Americans that Social Security will not be there for them when they retire....

Editor's Note Mr. Berkowitz ends his piece by noting that even when major overhauls of social programs fail, some changes are usually made. After Clinton's health care plan failed, Medicaid was substantially expanded to help the poor gain greater access to medical care.