Politics & Policy

Reform Reborn

House conservatives take up Social Security.

In 2000, then-Gov. George W. Bush introduced the idea of letting workers invest some of their Social Security funds into presidential politics. This year, however, he has been less vocal about the issue, largely out of deference to House Republican leaders who worry that reform is a vote loser.

Now some congressmen are stepping forward to make it clear that not everyone in the House Republican conference is afraid of the issue. Rep. Paul Ryan (Wisc.) introduced a private-account bill this week. Another one was introduced by Sam Johnson (Tex.), with Reps. Jeff Flake (Ariz.) and Pat Toomey (Penn.) as cosponsors.

Toomey and Ryan both say that the bills are part of a joint effort with two goals. The first is to demonstrate strong House Republican support for private accounts by getting as many co-sponsors as possible. “Every Republican should feel comfortable cosponsoring one or the other or both,” says Ryan. The second is to move the debate among reformers to large accounts. Both bills would allow people to invest, on average, 6.2 percent of their wages, which is most of the portion of the payroll tax that shows up on pay stubs. Previous bills, notably the one sponsored by Jim Kolbe (R., Ariz.) and Charles Stenholm (D., Tex.), have allowed a much smaller level of private investment.

The assumption behind those earlier bills was that smaller accounts would be easier to get through Congress. Letting workers invest two percent of their wages would be the cautious, incremental, toe-in-the-water approach. Also, the immediate budget impact of the accounts would be smaller. Private accounts do not increase the Social Security system’s total obligations to current and future retirees. But private accounts do shift some of those obligations forward in time–and the larger they are, the more that is true.

The new bills work off different assumptions. The large-accounts people argue that workers will not be interested in the accounts unless they can put significant amounts of money in them–and thus accumulate money faster. “It’s large accounts that really allow you to transition to a system that really becomes entirely funded through personal savings,” says Toomey. “It allows you to get away from the dependency of this transfer system that we have in place now.” Ryan concurs: “It more quickly gets people into the business of being capitalists.”

There are some significant differences between the two bills. The Ryan bill is based on the plan of longtime Social Security reformer Peter Ferrara. It recognizes workers’ past contributions to the system by paying them back a percentage of what they put in. It has a progressive feature: lower-income workers will be able to invest a higher percentage of their wages than higher-income ones. It attempts to deliver all the benefits promised by current law to future retirees. It pays for the program’s existing shortfall, and the financing costs of creating the accounts, by cutting domestic spending.

The Johnson-Flake-Toomey bill, on the other hand, is based on the work of the Cato Institute. It issues workers a negotiable bond reflecting the value of their past contributions. They can start their accounts with the proceeds from the sale of that bond. This bill lacks the Ryan’s bill’s progressive feature. And it is financed by reducing the growth of benefits–although everyone would be guaranteed benefits worth at least 125 percent of the poverty level.

Neither side is criticizing the other much, but both camps think their bill makes more political sense. Rep. Ryan argues, “The point I’m trying to make is we need to have a reason for controlling spending beyond that it’s a good thing to do. I like the idea of showing people that there’s a tremendous benefit to getting spending under control: a large private account in your name. At the same time, we maintain a very important political point: We’re not going to cut your Social Security benefits. Philosophically, I would rather send more money in checks to citizens, which is the least inefficient kind of program the government can run, than to the National Endowment for the Arts or some other government bureaucracy.”

Rep. Toomey, on the other hand, argues that because the bill he is co-sponsoring would make it possible for workers to have large balances in their accounts on day one–from the proceeds of the bond–it would be more appealing. “They’re invested financially and psychologically in the reform from day one with a really meaningful amount of savings.” He also thinks that high-income workers will prefer this plan precisely because it is not progressive. Here’s what he says about the question of funding: “I want to be very complimentary of Ryan’s bill; I think it’s very constructive. The [budget] scoring of this bill should not reflect changes in law that are outside the Social Security system. I am a big supporter of [general] spending restraint, but it has nothing to do with Social Security reform.” Toomey does not worry about facing the charge of “cutting benefits,” he says. “It’s promised benefits and most Americans understand that the system is not capable of delivering on those promises.”

Grover Norquist, the well-known conservative activist, is a friend to both camps. He thinks that it is helpful to start a discussion about large accounts–but worries that it might not be helpful to start that discussion at the same time as the differences between the bills draw attention to the question of financing reform. Above all, he hopes that the president will return to the theme of Social Security reform during the Republican convention. On that point, Ryan, Johnson, Flake, and Toomey concur.

Ramesh Ponnuru is a senior editor for National Review, a columnist for Bloomberg Opinion, a visiting fellow at the American Enterprise Institute, and a senior fellow at the National Review Institute.

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