Right when supporters need it most, Congress introduced legislation this week that could finally put new momentum behind Social Security reform. Republicans in the House and Senate have crafted a proposal that would incorporate the annual Social Security surplus into private accounts.
Critics on the left say the legislation takes money out of the so-called Social Security trust fund. Critics on the right contend the bill does not go far enough in using Social Security funds to establish personal investment accounts. But the legislation’s authors say they offer a good-government proposal that removes the major objections from both sides of the debate.
Senator Jim DeMint took the lead on the Senate side in crafting a proposal. The general idea behind it was that while the contentious debate over Social Security’s solvency rages there is an annual surplus in the fund of roughly $150 billion dollars being diverted into other programs. A vote on the bill would force senators to publicly state their preference for using Social Security surplus funds to shore up the system or for pork projects. As Senator DeMint tells NRO, “Politicians who refuse to stop the raid are part of the problem. The reason Democrats don’t like people owning their retirement, is because they like controlling your money.”
But would House and Senate Republicans risk giving more ground on Social Security simply to make a point? They might when considering both the short-and long-term benefits of the proposed legislation. In the short run, Republicans can show the public they are playing the role of honest negotiator in pursuing reform solutions. As one senior GOP aide close to the discussions told me, “If the Senate cannot agree on this first step to stop the raid on Social Security, what can they agree on? We’re talking about a bill that doesn’t raise taxes, doesn’t cut benefits, but does give Americans a legal right to their retirement. If we can’t pass that, we’re not serious about reform.”
The long-term stakes may be larger.
Senator Rick Santorum is probably the most vulnerable Republican senator up for reelection in 2006. Earlier this week, Santorum signed on as a cosponsor of DeMint’s proposal. In addition, Tom Coburn, Michael Crapo, and Lindsey Graham become cosponsors. On the House side, Clay Shaw and other Republicans on board represent districts with some of the highest concentrations of seniors in the nation.
If their legislation were successful it would give Republicans personal accounts while not fundamentally altering the system. Santorum and other incumbents running for reelection would have this as an asset to deliver to cautious voters. As a senior aide to Santorum tells NRO, “This is a good first step towards making sure the money stays in the system.”
If the bill fails, Santorum and Republicans in both the House and Senate will potentially achieve a strategic victory. Democrats who oppose the bill will be painted as obstructionists who cannot be trusted as fair negotiators on the issue. In so many words Democrats will have to acknowledge they would rather raid the Social Security trust fund for other programs rather than making the system solvent today.
As a solution, the DeMint proposal may not please the strongest reform proponents. However, sources have told NRO that the White House has worked closely with DeMint’s office on piecing together the proposal.
One of the proposal’s critics is the pro-market Free Enterprise Fund. FEF Policy Director Phil Kerpen tells NRO the surplus funds would only provide about half of what President Bush has called for, “The biggest the accounts can get is 1.8 percent, vs. 4 percent if interest is included. There is no real policy rationale for continuing to pay interest into the trust fund instead of the accounts.” Kerpen said. However, Kerpen notes the Free Enterprise Fund still supports DeMint and Shaw’s legislation, they simply feel it should be stronger.
DeMint and Shaw’s proposal also places limitations on how the surplus funds can be spent. Unlike President Bush’s stated preference, funds could not be invested in the market. Instead, they would be limited to treasury bonds. Therefore, if personal accounts proved successful, additional tax revenue could be transferred to them from the general Social Security fund as the surplus deteriorates. And if personal accounts proved a failure they could be phased out.
On the left, the anti-reform group Americans United to Protect Social Security has targeted the proposal. On Wednesday, the group held a phone conference to denounce both bills. The Center for Economic and Policy Research’s Dean Baker was brought in to explain why the legislation was no different than President Bush’s proposals. However, the best Baker could muster was mixing numbers to falsely imply the Social Security surplus was currently paid out in benefits to retirees. Baker said, “The basic story of their plan is to take money out of the Social Security trust fund. Take money from the surplus and put it into private accounts.” The alternative proposed by Baker and endorsed by many Democrats is to quite literally ignore the problem. Baker, for instance, suggests coming back to the issue in 2009.
In fairness, more than one GOP congressional source admits privately that the odds of this Social Security reform proposal passing are nominal. However, there is both hope and confidence that presenting the bill will provide some positive momentum on the issue. House Republicans could realistically pass a bill that moves to the Senate. Unlike other stronger proposals, vulnerable House Republicans would not have to fear a voter backlash. In the Senate, the bill would almost certainly be filibustered. However, it would give reform-minded Republicans a strong opportunity to sell their side of the issue.
With polls showing broad public disapproval of Congress, Republicans are naturally eager to accumulate issues that could nationalize the 2006 elections in favor of conservative candidates. A good-government Social Security reform proposal might be a wise start.
–Eric Pfeiffer writes the daily political “Buzz” column on NRO.