The Obama Fiscal Commission’s Preliminary “Report”
In 1983 Ronald Reagan signed into law the last comprehensive reform of the Social Security program. This was an improbable event, forced upon the political system by the exigencies of the time. Many commentators have pointed to this historical precedent to illustrate how to undertake successful Social Security reform. But most manage to miss the main point of the precedent.
President Reagan signed the landmark 1983 Amendments to the Social Security Act in April 1983. This was the culmination of a process that began in 1981 when Reagan also appointed a bipartisan commission, this one headed by Alan Greenspan, to study the problems of Social Security’s long-term future. The problems then were in many respects far worse than they are today. The program’s Trust Funds were projected to be depleted in August of that year. That is, the program was four months away from defaulting on its obligations. Today, that default is projected to occur in 2037.
Ronald Reagan—in partnership with the Democrats—rescued the Social Security system from imminent collapse in 1983. In the process, Reagan became an improbable champion of a system he had long opposed. The Democrats on the Greenspan Commission realized they had succeeded beyond their wildest expectations when in his signing statement President Reagan said this:
This bill demonstrates for all time our nation's ironclad commitment to Social Security. It assures the elderly that America will always keep the promises made in troubled times a half a century ago. It assures those who are still working that they, too, have a pact with the future. From this day forward, they have our pledge that they will get their fair share of benefits when they retire.
An Improbable Champion-
Reagan—from the very beginnings of his political career as a pitchman for General Electric—had repeatedly expressed his opposition to all forms of government-sponsored social insurance. When Barry Goldwater sought to abolish the Social Security program by making it voluntary, Ronald Reagan applauded the idea. As late as 1975, in a radio broadcast, Reagan called for the privatization of the system. (1)
As the 1964 Goldwater presidential campaign was sinking slowly in the west, in a desperate last minute effort to save it, the campaign purchased a half-hour of television time for a program featuring Ronald Reagan, looking earnestly into the camera and imploring America to vote for Goldwater. This is often cited as the real beginning of Reagan’s political career. Reagan’s last-minute televised speech in late October 1964, just days before the election, did little for Goldwater, but much for Reagan, who would soon become the favored Republican candidate for Governor of California. Reagan spent a good part of that speech defending Goldwater’s idea of making Social Security voluntary. Reagan ended “The Speech” by predicting that if Goldwater and his plans were defeated, the consequences for “our children” would be dire: “we will sentence them to take the last step into a thousand years of darkness.”
When Medicare was on the verge of passage, Reagan, at the behest of the American Medical Association, launched “Operation Coffeecup” in an effort to enlist AMA wives to lobby their neighbors against the legislation. At the time he said this: “Write those letters now. Call your friends, and tell them to write them. If you don't, this program I promise you will pass just as surely as the sun will come up tomorrow. . . . And if you don't do this, and if I don't do it, one of these days, you and I are going to spend our sunset years telling our children, and our children's children, what it once was like in America when men were free.”(2)
How did Ronald Reagan go from rhetoric like this to affirming “our nation’s iron-clad commitment to Social Security”? Simple, President Reagan stepped up to his responsibilities as President and behaved like an adult, and the Democrats did so as well.
The Outlines of the 1983 Reforms
The Greenspan Commission had fifteen members, five appointed by the President, five by the Senate Republican leadership, and five by the House Democratic leadership—tipping the balance on the Commission decidedly in favor of the Republicans. Among the prominent Republicans on the Commission were Senators Bob Dole and Robert Heinz and House Ways and Means Committee Chairman Bill Archer. Among the prominent Democrats were Senator Daniel Patrick Moynihan, AFL-CIO President Lane Kirkland, and Robert M. Ball, former Commissioner of Social Security.
The Commission was by no means destined for inevitable success. In fact, it missed its reporting deadline because the members could not achieve a consensus. At pretty much the midnight hour—when it looked like all was lost—Senator Moynihan approached Senator Dole on the Senate floor and said to him “are we going to let this die?” The two agreed to try again and in a final push—led by Robert Ball and White House aides Dick Darman and James Baker—the Commission was finally able to issue a report on which twelve of the fifteen members signed off (three of the Republican members would not sign).
The report of the Greenspan Commission was essentially the product of a negotiation between President Reagan and House Speaker Tip O’Neill, through their proxies. It was the willingness of these two towering political figures to accept hits to their own political interests that made success possible. Reagan agreed to accept various tax increases (and to embrace Social Security) and Tip O’Neill agreed to accept various benefit cuts.
Of the policy changes made in 1983, approximately 52 percent of the savings in the short-term came from tax increases, 34 percent from benefit cuts, and 15 percent from expanding the coverage of the program (to include federal employees). In the long run, the proportion was approximately 41 percent from taxes, 38 percent from benefit cuts (including raising the retirement age), and 21 percent from coverage changes. (3) Everybody got hurt, in a rough balance.
The Commission did not fully succeed in closing the long-range financing shortfall. They left some money on the table. The Republicans on the Commission favored closing the gap by raising the retirement age, but the Democrats would not go along. It was left to the Congress to reach the baton across the finish line.
It was the Democrats in the House of Representatives who ultimately stepped up. Social Security Subcommittee Chairman, J. J. “Jake” Pickle of Texas—backed by Ways and Means Committee Chairman Dan Rostenkowski—introduced the amendment on the House floor to raise the retirement age under Social Security from 65 to 67. It was Pickle who fought off the efforts of his fellow Democrats to defeat this idea. This was a Democrat sticking it to his own political base, because Pickle cared more about solving Social Security’s problems than he did about besting the Republicans.
The Contrast with Today-
Pretty much at the same time that the chairmen of the Fiscal Commission were meeting in a Senate hearing room to release their “chairmen’s mark,” I was attending a meeting on the other side of the Capitol in a House hearing room, to be briefed on a newly issued report by the National Academy of Social Insurance (NASI). (4) The NASI report was on the 1983 amendments and the lessons they teach us for our current efforts at Social Security reform. The NASI folks were trying to pre-empt the Fiscal Commission by signaling what reforms they found acceptable, while the Commission was already making much of their advice moot.
The NASI effort was serious and responsible, as NASI is non-partisan organization, with a centrist bent (albeit, with a commitment to social insurance). More common in the aftermath of the Bowles/Simpson press conference were the reactions of more partisan players.
Grover Norquist pronounced from on high that anyone who accepted this report would be violating the “no taxes” pledge his Americans for Tax Reform group regularly extorts from candidates for office. Norquist was issuing a threat, with all the subtlety of a Mafia don. Norquist accused President Obama of violating his promise not to raise taxes on the middle class—even though the draft report is weeks away from going to the president, if it ever does. But Norquist apparently has the gift of precognition so he knows who to vilify in advance of their actually doing anything of which he disapproves.
Paul Krugman disgraced himself with a New York Times screed in which he took petty potshots at the Commission, made ad hominem snarks at the chairs, and in which he analyzed the relative importance of taxes and benefit cuts in the plan by scrutinizing the order of the bullet points on the Commission’s PowerPoint slides. It was clear Krugman had made up his mind about the Commission on the day it was formed. (5)
The Committee to Preserve Social Security and Medicare decided its contribution to preserving Social Security would be to attack the young staffers working for the Commission because they are volunteers who are being paid by their home organizations, some of which, gasp, are “deficit hawks”! They even managed to get this kerfuffle into the pages of the Washington Post, in an inane effort to defeat the reforms by undermining the credibility of the Commission. (6)
Democratic congresswoman Jan Schakowsky—a Commission member—announced to the press that the Chairmen’s draft proposal was “dead on arrival”—not exactly what we might call deliberating in good faith. The Heritage Foundation called the report “a good and welcome first step,” then proceeded to reject the defense cuts and the tax increases, falling back on their usual incantation: “As feared, the co-chairs’ proposal is to levy staggering tax hikes on America’s families and businesses when the problem is spending and spending alone.” (7)
In other words, the usual suspects were playing politics as usual. Only President Obama, and a handful of members of Congress (mostly Republicans), showed any restraint at this beginning stage of the political process.
In the present debates, when we see Republicans come out in favor of tax increases, and when we see Democrats sponsoring entitlement cuts, then we will know that they are serious people, trying to be the adults in the room. If Democrats don’t like the benefit cuts in the Commission proposal then they should propose other cuts that yield an equivalent savings. If the Republicans don’t like the taxes, they should propose alternative ways to raise a similar amount of revenue.
The “Chairmen’s mark” does what political leadership is supposed to do. By joining hands in sponsoring a proposal that both raises taxes and cuts entitlements and other favored federal spending, Senator Simpson and Chairman Bowles are acting in the finest tradition of the 1983 reforms.
When the Grover Norquists of the political menagerie protest the presence of any taxes in the Commission’s proposal, and when the left expends it moral indignation over the fact that some of the Commission’s staff are being paid by their home organizations, we know that such people are not serious. Ronald Reagan and Tip O’Neill would have thought them childish. And I would say, they have learned nothing from the events of 1983.
Most plans advanced to address the nation’s fiscal circumstances are unserious because they are shaped by ideological agendas and are designed to secure maximum partisan advantage. The Fiscal Commission’s preliminary report is the only comprehensive plan I know of which actually takes seriously its responsibilities and provides a comprehensive approach to our fiscal mess, without regard to the ideological idolatry of the Right and Left, and which sticks it to all parties concerned. It is a serious and adult effort.
The draft plan is not, for my preferences, perfect. If I were on the Commission I would want to quarrel over some of its provisions. I am inclined, for example, to think that it is premature to consider raising the full retirement age past 67 until we get to 67 and see how that works out. I would raise the cap on contributions higher than the 90 percent level the Commission suggests and get more of the solvency savings from tax increases. I would also increase the Social Security tax rate, which was put in place in the law in 1977 and has not been raised since. But I would embrace whatever package of changes are necessary to restore Social Security to solvency, even if it is done in ways I think less than ideal. (8)
At the press conference, Chairman Bowles estimated that of the money saved by the Social Security proposals, 57 percent comes from benefit cuts and 43 percent from tax increases. If the final numbers turn out anywhere close to that, I think we have to conclude that this is a balanced proposal. It is simply daft to think that we can restore Social Security to solvency without cutting anyone’s benefits. It did not happen in 1983 and it will not happen now.
I also think that the Commission ought to aim for a plan that has a global logic which appeals to common sense. I would say, for example, that half the reductions in the deficit/debt ought to come from tax increases and half from spending cuts, rather than three-quarters from spending cuts and one-quarter from tax increases, as in the present plan. I think more people could understand this as a fair shared sacrifice. By making the totals three-quarters vs. one-quarter, we open a whole debate about balance. (But note that the plan’s overall effect is to raise revenue levels from their current 14 percent of GDP to 21 percent of GDP—not an insignificant change.)
But at the end of the day, whatever we produce must look substantially like this plan. It must raise taxes seriously and significantly, and it must cut government spending (including Social Security and other entitlements) seriously and significantly. It must achieve at least as much as this plan in short-term deficit reduction and in long-term debt reduction. No person of good will should be doing anything other than congratulating the Commission’s co-chairs for reminding us what it looks like when adults step up and take their responsibilities seriously.
The Real Lessons of 1983
For the supporters of the Social Security program, here is the lesson of history that you need to contemplate: Ronald Reagan—a life-long foe of the whole idea of social insurance—stepped up to his responsibilities in 1983 by compromising his principles and in so doing he saved the Social Security system for a generation. Democrats of that day also stepped up to their responsibilities by promoting cuts to Social Security, and in so doing they helped save the system as well.
Social Security faces long-range financial insolvency. This is a condition that has persisted since 1988. The program will never be safe as long as the specter of insolvency hangs over it, with reports from the actuaries, year after year, that the program cannot keep it promises. A generation ago, young people were utterly disillusioned about Social Security, believing it would never keep its promises to them. Today that sentiment has returned with a vengeance. The steady drip-drip-drip of adverse news about Social Security’s long-term future gives young workers reason to worry. This year marks the seventy-fifth anniversary of Social Security. The program has kept it promises to millions of Americans, and I am certain it will continue to do so. (Over the years the program has paid out over $11 trillion in benefits to more than 218 million people—most of whom also believed they would never see a dime from their contributions.) But we cannot make this case as long as the program’s financial future is open to question. We cannot keep kicking the can down the road because 2037 is farther away than August was in 1983. We have to put the issue of Social Security’s future to rest.
The draft Fiscal Commission report restores Social Security to its full seventy-five-year solvency, and beyond. It embraces the Social Security program, ensconcing it into our public life for another seventy-five years. It explicitly separates restoring Social Security’s solvency from the task of reducing the general federal debt. By lowering the overall federal debt, it positions the government to be better able to meet its future commitments to Social Security. These are goals that have eluded us for more than two decades. If you really want to save Social Security, then grasp this nettle for all you’re worth.
It is time for supporters of Social Security to step up and behave like adults. This is the chance of a generation. It’s our turn now.
(1) Ronnie Dugger, On Reagan: The Man and His Presidency, (New York, McGraw-Hill, 1983), 49-50.
(2) See my essay, “Operation Coffeecup: Ronald Reagan’s Effort to Prevent the Enactment of Medicare,” September 2004. Available online at: http://www.larrydewitt.net/Essays/Reagan.htm
(3) Larry DeWitt, “The Development of Social Security in America,” Social Security Bulletin, Vol. 70, Number 3, 2010: 17.
(4) Full disclosure: I am a member of NASI.
(5) Paul Krugman, “The Highjacked Commission,” New York Times, 11/11/10.
(6) Dan Eggen, “Many deficit commission staffers paid by outside groups,” Washington Post, 11/10/10.
(7)Alison Acosta Fraser, “Bowles–Simpson Commission Co-Chair Report: A Good and Welcome First Step.” 11/10/10. Available online at: http://www.heritage.org/research/reports/2010/11/bowles-simpson-commission-co-chair-report-a-good-and-welcome-first-step
(8) In fact, some of the draft proposals will adversely affect me personally. While I would prefer not to be impacted, I am willing to take my hits as part of a shared effort.