Brendan Miniter: Why It's Dangerous for the Republicans to Compromise on Social Security

Over breakfast at the Republicans' Capitol Hill Club the other day, Rep. Clay Shaw Jr. of Florida asked me the question dominating Beltway minds: Where is Social Security reform headed? Although I was interviewing him about his reform ideas, it was a pivotal question. There's a letter now making the rounds signed by 42 Senate Democrats--enough to sustain a filibuster--warning President Bush that they will never support diverting Social Security taxes into private accounts. There's also a poll claiming to show that the more Americans learn about private accounts, the less they like the idea. By asking the question, Mr. Shaw was asking if I agreed with the view that Social Security will prove to be George W. Bush's HillyCare--a massive policy defeat that will put the president on the defensive for the rest of his time in office.

But a different comparison came to mind. Social Security reform is more like welfare reform, and it holds a set of risks not yet fully contemplated by Republicans. Namely, the party that doesn't stick to its guiding principles on entitlement reform ultimately loses elections. In 1996 President Clinton gave up the welfare-state principles his party had embraced for decades, declared "the era of big government is over," and signed welfare reform. The move probably sealed his re-election. But because many Democrats stuck to their old ideas, ultimately Mr. Clinton left his fellow Democrats standing around without any defining principles. With the era of big government over, why would voters continue to support the party of big government?

President Bush finds himself in the reverse position today. The GOP has become the party of ownership, but the president is under pressure to declare the era of free-market entitlement reforms to be over. Democrats and more than a few Republicans in Congress would prefer that the president take the politically expedient route and simply pour more money into Social Security, preserving the welfare-state structure of the program. If he does that, however, he risks repeating Mr. Clinton's mistake--taking away a big reason voters have to continue supporting the party.

The comparison came to mind because Mr. Shaw was a chief architect of welfare reform. It was his bill, supported by 98 House Democrats, that Mr. Clinton signed nine years ago. And it is Mr. Shaw who is now tempting his GOP caucus as well as Democrats with a compromise plan on Social Security. That the two biggest entitlement reforms in a generation might come from the same source is no accident. After succeeding with welfare reform, then-Speaker Newt Gingrich asked Mr. Shaw to turn his attention to Social Security, and in 1999 the Florida congressman was tapped to be chairman of the subcommittee on Social Security, a post he held until earlier this year. Perhaps more than any other member of Congress, Mr. Shaw has learned the intricacies of the system and pondered what is politically possible. He has even stumped for reform in his district, where one-third of his constituents are over 65. What he's come up with is a plan that some Democrats have privately told him they might support.
That shouldn't be too surprising. Mr. Shaw's plan is to leave Social Security alone and instead create separate "add on" private accounts with general tax revenues. Each year the government would drop into an account a tax credit equal to 4% of a worker's pay or $1,000, whichever is less. Workers would then manage the money by picking from a few mutual funds. When it comes time to retire, a worker would be forced to sign the account back over to the government. The Social Security Administration would then use the money to fund part or all (depending on how much is in the account) of that worker's Social Security benefits. As a bonus, upon retirement the government would hand the worker a check equal to 5% of whatever is in the account. The advantage of this plan is that it's impossible to demagogue because it creates a new funding stream for Social Security. It requires some borrowing up front, but then what plan doesn't? And over the next 75 years it is estimated to bring in trillions more than will be paid out.

There is a serious drawback, however. It gives Social Security a larger claim on the federal budget. That almost guarantees that if the plan is adopted, there will never be an appetite to reform the system fundamentally in order to give Americans control over their Social Security taxes. Congress rarely makes hard political choices until faced with a fiscal crisis, and with a new pot of money to feed off of, the system would never run out of money again. For now, however, the White House likes Mr. Shaw's talk of private accounts. So although he says he's met with "anyone I can," including White House officials and senior Republicans on the Hill, no one has yet discouraged him. ...