May 10, 2005,
In a press conference, President Bush provided more details on his Social Security reform. He continued to express support for personal investment accounts. He also came out, for the first time, for reductions in the growth of benefits for middle-income and upper-income workers. His proposal drew strong protests from the left, and scattered protests from the right.
John Kerry argued that Social Security benefits could be maintained if Bush's tax cuts were repealed. But he is engaging in some sleight of hand. The casual observer might have thought that Kerry was saying that all promised benefits could be paid for if we just reverted to the average tax rate of 2000. In truth, Kerry envisions an average tax rate that creeps steadily upward well above any level that America has suffered before. And why should middle-income and upper-income workers pay higher taxes in order to finance higher benefits for themselves? Surely most of them would prefer to keep that money rather than hand it over to the government for not-so-safe keeping.
Many liberals worry that a reduction in benefits for higher-income workers will undermine Social Security politically. The program has always been built on a kind of deceit. It has a strong redistributive component. But the redistribution is hidden. Everyone pays taxes to Social Security and gets benefits from it, and so everyone thinks that he is getting back what he paid in. Affluent voters do not complain about paying for the retirement of low-income workers because they do not notice that they are. The program would be much smaller and more manageable if it stopped robbing Peter to pay Peter. The liberal fear is that a more openly welfarist program that robbed Peter to pay Paul would forfeit Peter's enthusiasm.
But this fear is highly speculative. Most voters will not want to see large numbers of people face penury in retirement. The Democratic solutions on offer raising taxes on the successful would not be likely to make them any more supportive of the program. And the country should not have to put up with higher taxes and reduced investment opportunities because the consequences might be adverse to liberals' political interests somewhere down the line.
that Bush is envisioning
is a reasonable one.”
The change in benefits that Bush is envisioning is a reasonable one. Robert Pozen, a Democrat who came up with the idea of progressive benefit cuts, has outlined how it would work for a median-income worker retiring in 2045. Under the Bush plan, he would receive $16,417 a year from the government. Bush's critics say that the same worker would get $19,544 if the current benefit levels are maintained. But they are wrong about what the current system "promises" and are therefore using the wrong comparison. Since the program can't pay for its promises, an unreformed program would automatically cut benefits. Social Security, unreformed, would give our middle-income worker only $14,267. If we reform the program now, he will come out ahead and that's before we add in his opportunities for accumulating wealth in his personal account.
Bush has critics on the right who favor personal accounts but want to keep benefits at their promised levels. Their solution to the program's insolvency is essentially to run up large amounts of debt. Most conservatives should be able to see that a plan with benefit restraint and less debt is far superior to one with no benefit restraint and more debt. So the advocates of the debt solution generally make a political argument: Republican politicians, they say, would be safer following their course.
But this political calculation is dubious. Congress is at least as likely to enact a reform that moderates benefit growth as it is to approve one that involves trillions of dollars of explicit debt. Whether voters would be angry at the prospect of benefit "cuts" that would occur far in the future has not recently been tested. The last time congressmen voted for such cuts after the Greenspan commission recommended them in 1983 they did not suffer massive losses. True, in that instance there were bipartisan majorities for the cuts that would not exist this time. But the polling so far has not provided cause for alarm (even if it has provided cause for concern).
Committees in the House and Senate are starting to take up Social Security reform. They should follow the president's lead. The Editors
EDITOR'S NOTE: This editorial appears in the May 23, 2005, issue of National Review.