5/16/00 12:40 p.m.
Grabbing the Rail
Bush's breakthrough.

By Richard Nadler, chairman, Republican Ideas Political Committee

n Monday, George W. Bush told an audience of seniors at Rancho Cucamonga, California, that Social Security reform must include individually controlled, voluntary personal retirement accounts, funded by a diversion of existing payroll taxes. "Right now," he said, "the real rate of return people get from what they put into Social Security is a dismal two percent a year. Over the long term, sound investments yield about a six percent return. Investing that four percent difference, over a lifetime, can show dramatic results. A worker who invests even a limited portion of his or her paycheck could, over a career, end up with hundreds of thousands of dollars for retirement."

According to Bush, "The best thing about personal accounts [is that] they are not just a program, they are your property. And no politician can take them away."

For the first time since 1980, the Republican presidential nominee has enunciated a strategy that enlarges the GOP base on conservative principles. By advocating investment rather than entitlement, Mr. Bush has positioned himself to harvest the expansion of the investor class from 52 million in 1989 to over 80 million today. He has tapped into genuine experience, the root of America's euphoria in the ’90s: Personal ownership of financial assets.

Recent polls indicate that Mr. Bush, by grabbing the "third rail" of American politics, may in fact have grabbed its "third party" — the voters who supported Perot in ’92, Buchanan in ’96, and McCain in early 2000. Converting a popular but endangered program into a personally held asset may spark new interest in Republican economic ideas, dormant since W.'s father disavowed them.

But beyond this election, the governor has mapped out a significant long-term conservative strategy.

First, capital ownership creates an abiding interest in ... capitalism. As Rasmussen Research (and this author) demonstrated last year, share ownership is associated with increased levels of Republican Party affiliation, regardless of income, age, race, or marital status.

Second, by centering the "tax question" on the "flat" payroll tax, Republicans can avert the consequences of their past policy follies. Over 30 percent of Americans pay no income tax, giving other rent-seekers a substantial edge in forming majorities for "progressive" marginal rates. But nearly 100 percent of Americans disgorge payroll taxes. Here, conservatives enjoy one principal advantage of a genuine flat tax: it is easy to cut.

Third, by placing personally owned, privately managed investments in direct competition with government-administered programs, Republicans can shift the debate from a disadvantageous terrain — the welfare of rent-seeking groups — to one highly advantageous, i.e., the felicities of efficient markets. Let the worker compare the accumulations in his private account against the depredations of the payroll tax as he has known it!

As privatization plans go, the Bush's proposals are tame. Current Social Security recipients are guaranteed their benefits. The welfare provisions of the system — roughly 1.7 percent of wages — will be maintained. Investments will be limited, just as in the Federal Thrift Savings Plan.

But the basics remain revolutionary. George W. Bush proposes to reform Social Security with private accounts, personally owned, but without a tax increase. He is betting that Americans’ deep pool of investor experience will render this plan popular. If he is correct, American politics will be transformed.