Politics & Policy

Dems’ Plan

The Democrats' Social Security-reform alternative can't work.

Here’s a little fact some folks would rather you not know. The Democrats actually do have a plan to save Social Security. Their proposal was authored by MIT economist Peter Diamond and Brookings Institute fellow Peter Orszag. (Here it is; and here’s a Boston Globe article describing it.)

Diamond-Orszag resembles the president’s plan in that it proposes substantial reductions in the rate at which Social Security benefits increase. Diamond-Orszag’s benefit “cuts” (really lower benefit increases) are smaller and more progressive than the “cuts” proposed by the president. Yet Diamond-Orszag pays for these smaller cuts with a substantial tax increase.

Once you see the Democrats’ plan to save Social Security, several things become clear. First, Social Security is in serious trouble. Even the Democrats can’t save it without painful changes. Second, the Democrats’ own proposal shows that any realistic plan to save Social Security requires benefit cuts. The president’s plan makes up 70 percent of the Social Security revenue shortfall through benefit cuts. The Democrats’ plan makes up 50 percent of that shortfall through broadly similar cuts. It’s tough to indict the president for callous indifference to the plight of retirees when we’re talking about a 20-percent difference between two plans. Third, the Democrats’ proposal shows that the real alternative to benefit cuts is a major tax increase. In short, once the public knows what the Democrats’ plan actually says, it will quickly become impossible to use Social Security as a hammer against the Republicans.

True, congressional Democrats haven’t officially offered Diamond-Orszag as their own plan. Still, Diamond-Orszag–or something like it–is the only conceivable alternative the Democrats can offer. That’s why Diamond-Orszag is increasingly being treated as the effective Democratic plan. Saturday’s Los Angeles Times called Diamond-Orszag “a proposal that may serve as a model for a Democratic plan.” The Boston Globe is touting Diamond-Orszag as the key Democratic alternative. And in a very sharp analysis (which I’ve drawn on here), Mickey Kaus treats Diamond-Orszag as the de facto Democratic alternative to the president’s plan. (More on Kaus below.)

So here’s some advice for Republicans: Don’t wait for congressional Democrats to come clean; start treating Diamond-Orszag as what it is–the de facto Democratic solution to the Social Security mess. Make “Diamond-Orszag” a household word. Do this and it will quickly become impossible for congressional Democrats to run their deceptive little game. They will have to openly embrace Diamond-Orszag, or explain why they won’t.

Challenging congressional Democrats to comment on Diamond-Orszag will force them out of silence much more effectively than simply saying the Democrats “have no plan.” The Democrats do have a plan–a plan they’re afraid to own up to. Once the country starts debating the relative merits of the president’s plan versus Diamond-Orszag, the silence of congressional Democrats will become untenable.

Mickey Kaus has already done a spectacular job of revealing Diamond-Orszag’s implications for the Social Security debate. Analyzing Diamond-Orszag, Kaus shows that the Social Security problem is serious, that it cannot be fixed without something that broadly resembles the president’s plan, and that tax increases are bound to be part of any Democratic alternative. Kaus also shows that the Democrats’ planned tax increases will seriously inhibit liberal hopes of eventual healthcare reform. Remarkably, however, Kaus refuses to endorse a Social Security fix that compromises the president’s plan with Diamond-Orszag.

Having faced the truth about the massive nature of the Social Security shortfall, and the limitations of the Democrats’ own plan, Kaus says something neither Democrats nor Republicans dare utter. According to Kaus, it would actually be a mistake to “save” Social Security. Kaus knows that the sheer cost of fixing the program–particularly if higher taxes are involved–is going to make the sort of healthcare reform Democrats crave simply unaffordable.

So Kaus wants to hold out for a trade. On the assumption that the Democrats will at some point regain control of the White House and/or Congress, he hopes to exchange a massive rollback of Social Security for Republican acceptance of a universal health-insurance plan. Kaus argues that this sort of massive restructuring of America’s entitlements will be very difficult to pull off in the absence of an actual entitlement crisis. So instead of fixing Social Security now, Kaus wants to avoid a fix, risk a fiscal crisis, and use that crisis–along with presumed Democratic political control–to trade huge Social Security cutbacks for universal health care.

Kaus’s solution to the entitlement puzzle is shaky, to say the least. Yet he’s on target about the size of the problem, the relative similarity of the president’s plan to the Democratic proposal, and the costs and dangers of even the best Democrat alternative. That Kaus has to float such a desperate gamble of a proposal to justify refusing a deal with the president shows what a fix the Democrats are in.

The problem with Kaus’s radical solution to the entitlement mess is that it ignores the political damage sure to be wrought by the Democrats’ current tactics. Kaus acts as though the Democrats can hold back from a deal, sweep into power, then get Republicans to give them exactly the sort of cooperation the Democrats are refusing to give right now. But the truth is, if Democrats “Bork” the president’s Social Security plan, the entitlement issue will be swept up in a decades-long cycle of bitterness and revenge–just as the fight over judicial nominations has been poisoned ever since Bork.

Who could possibly pull off the sort of deal Kaus proposes? Presumably, President Hillary (swept into office by a backlash against private accounts, and a platform promising universal health insurance) could trade Social Security as we know it for universal health insurance. Yet even in the doubtful event that Hillary won the White House, she’d need large majorities in both houses of Congress to pull off Kaus’s deal. Without big majorities, President Hillary could only get Kaus’s deal with Republican cooperation. But it’s a sure bet that if the Democrats take over Congress and the White House on a “Save Social Security” platform, Republicans will refuse all cooperation on entitlements for decades. Instead of a deal between the parties, a deepened economic crisis would bring demagoguery, recriminations, and ostentatious refusals to compromise (i.e. exactly what the Democrats are doing right now).

For a preview, look at Germany. With low growth and extremely high unemployment, the German economy is in serious trouble. Germany’s demographic deficit is one of the worst in Europe, and that, along with competition from other states in a globalized environment, is forcing the slow dismantling of Germany’s elaborate welfare state. Unfortunately, Germany’s attempt to peel back its growth-stifling system of unemployment insurance has so far failed to jump-start its economy. Liberal politicians have turned on businessmen as scapegoats for the country’s economic woes, offering wild, quasi-Marxist denunciations of capitalism. What’s worse, Germany’s liberals are floating “anti-capitalist” economic reforms certain to drive away investment and deepen Germany’s downward economic spiral. Many are comparing the rhetoric of Germany’s new anti-capitalism campaign to the language of the Nazi era.

Of course America is not Germany. We don’t contend with a legacy of fascism and Communism. Yet as the German experience shows, the economic crisis Kaus thinks might jumpstart his grand-entitlement bargain is much more likely to kill it. Once the boomers start retiring and pressure on the budget from entitlements mounts, the growing number of elderly voters will make a political solution involving cuts much more difficult. Political gridlock on entitlements will scare off the foreign investors on whom the American economy depends. Europe’s coming demographic collapse will put the continent in an even tougher economic spot. And if any Western economy goes down, all the others will be called into question. (Here’s one scenario for a near-term economic “hard landing.”)

The best way to avoid getting caught up in the sort of vicious cycle Germany has entered–and the best way to free ourselves from the effects of a possible European meltdown–is to take advantage of the opportunity the president has given us. If we go at our entitlement problems now, before we’re pressed by economic strain and political bitterness, we just might be able to insulate ourselves from the sort of problems that are beginning to consume Europe. Waiting to solve the entitlement dilemma until we’re in the middle of a demographic and economic crisis will make things harder, not easier. And if the Democrats succeed in borking the president’s plan, future cooperation between the parties will be next to impossible.

Democrats are fond of dismissing the president’s plan with the claim that funding Medicare is a much bigger problem than saving Social Security. That’s true, but it misses the point. If the Republicans and Democrats can’t work out a compromise on the extremely difficult, yet relatively fixable, problem of Social Security, how are they going to make a deal on the much bigger problem of medical entitlements?

The decades-long political war over entitlements that the Democrats are surely kicking off right now will be a disaster for all of us. Yet think of the virtuous circle that would be set up by a successful deal on Social Security. If the Democrats compromise with the president, the public will surely praise both parties. Yes, the president will rightly get major credit for having proposed a deal in the first place. Yet Democrats will also come out smelling like a rose. And if the Dems actually do win back power, and then propose a fix for Medicare and Medicaid, Republicans will be hard-pressed not to compromise. Cooperation sets a powerful precedent.

There’s a chance that in the short term, the Democrats might get what they want. By refusing all cooperation with the president, by hiding the fact that their own plan barely differs from his (except for being even less politically palatable), the Democrats just might sweep the Republicans out. But that is unlikely.

The fundamental problem for the Democrats is that the entitlement problem is real–and massive. The difficulty is rooted in a demographic revolution we’ve only barely begun to confront. Yet even now, this new demography is transforming the West’s political landscape. This truth is too big to hide. Congressional Democrats’ flimsy attempt to pretend they haven’t got a plan is already being exposed–by their own supporters. Every month, the foundations of the Western welfare state look shakier. Every year, the voltage running through the third rail of Social Security politics grows weaker. Sooner or later, the Democrats little venture in nostalgia politics is going to bite back on them–and all of us–very badly. I’m betting on sooner.


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