Bush, Gore clash over Social Security proposals

Peter Johnson

In terms of campaign politics, Social Security has long been a sacred cow — an untouchable issue spelling political suicide for anyone trying to change it.
Yet as a result of a changing political climate, and the alleged Social Security crisis the country will face when a record number of baby boomers collect benefits, it has become a major issue in the 2000 presidential election.
The Social Security Act was signed by President Franklin Delano Roosevelt in 1935, intending to create a social safety net to protect workers against disability, loss of employment and to provide for the elderly.
It has since been expanded to include survivors, health care and disability benefits, plus cost of living adjustments.
The 1980 Social Security changes are vital to understanding the current debate over the issue.
At that time, the Reagan administration saw Social Security facing a serious financial crisis and appointed a commission to make recommendations to save it. The commission made numerous changes: allowing benefits to be taxed, covering federal employees, raising the retirement age in 2000, and increasing reserves in the trust funds.
These changes have created the modern Social Security system, which some analysts say if left unchanged, will become insolvent in the next 25 years. As a result, each candidate this election season has created a plan to preserve Social Security.
Democratic candidate Vice President Al Gore has promised to “put Medicare and Social Security in a lockbox and protect it.”
Gore refers to his plan as Social Security Plus. He would pay down the national debt, using the interest savings to fund the Social Security trust fund, and create individualized personal savings accounts that would be matched by the federal government according to income.
He also would provide additional benefits to widows and women who take time off to raise children, opposes raising the retirement age to 70 and would create laws to make it a federal crime to buy or sell Social Security numbers.
Gore’s plan is not without its critics. Some say that future administrations cannot be depended on to walk the narrow fiscal path that the plan would require. Others object to the funding, which depends on projections of future budget surpluses — a risky gamble.
“The budget surplus the government supposedly has now is basically a fantasy based on a three-year-old budget and optimistic economic projections,” said Time analyst Frank Pellegrini. “There’s little good reason to believe that Gore’s successors would be able to keep up such a budget, or that Gore himself would be able to get such a program out of the hangar in the first place.”
Citizens for a Sound Economy theorize that the Gore plan itself would be insolvent — saying that the government would have to hike income taxes by 16 percent or borrow over $10 trillion to bail out the system.
“Gore’s plan does nothing to address the insolvency of the system,” says Scott Hodge of the CSE. “It would only cover 12 percent of the unfunded liability.”
Republican candidate Texas Gov. George W. Bush proposes to modernize the system by allowing workers to invest their payroll Social Security taxes into personal savings accounts, and invest that capital in the stock market.
“Social Security has been called the third rail of American politics, –the one you’re not supposed to touch because it shocks you,” Bush said. “But if you don’t touch it, you can’t fix it, and I intend to fix it.”
Bush would also prohibit the government from investing in the stock market, maintain the current system for those at or near retirement age, preserve the current disability and survivors benefits and not raise the payroll tax.
Critics of Bush’s plan say his policy will create further insolvency.
The Wall Street Journal, in an examination of the Bush proposal, concluded he couldn’t keep both promises. The Journal also found the Bush plan would cut total benefits by 20 percent — what Bush refers to as a “transitional cost.”
Others find the proposal to be a serious fiscal risk, prompting questions of governmental responsibility for bailing out investors who lose money.
“Privatization proposals that would allow individuals to keep gains from private accounts in good times but require the government to maintain a floor in bad times would encourage individuals to take excessive risk,” said Joseph Cordes and Eugene Steuerle of the Urban Institute.
“The consequences to the government would be similar to those when the savings and loan financial sector essentially went bankrupt.”
Green Party candidate Ralph Nader takes a very different stance — that Social Security is solid, and that the forecasts of insolvency are unfounded.
“The idea that Social Security is going to run out of money is simply nonsense,” Nader said. “Panic fueled by opportunistic politicians and investment firms poses the only serious threat to the program.”
Nader contends the program will provide benefits until at least 2037, based on a very conservative assumption of a 1.7 percent annual growth rate — a figure that is only half the average rate over the last 100 years.
Nader further advocates removing control of pensions from banks and insurance companies and opposes privatization.
“By their very nature, market investments introduce risk into the equation,” Nader said.
Critics contend Nader is ducking the issue and ignoring the economic evidence spelling future insolvency.
“For Social Security to remain solvent, it would demand unprecedented levels of economic growth,” said Andrew Biggs of the Cato Institute. “Low birth rates and retiring baby boomers will slow the growth of the labor force. Not enough workers equals not enough economic growth.”
Nader’s position has received little criticism from either Bush or Gore.

Peter Johnson welcomes comments at [email protected]