Bush on the Home Front: Domestic Policy Triumphs and Setbacks

3. The Social Security Debacle

Social Security is a mandatory entitlement program in the sense that the federal government is required to provide income to all citizens who meet the program specifications. As currently structured, current payees transfer funds to current retirees. In theory, the current payees will one day be transferred funds according to some proportion of what they paid in transfer funds to the previous generation. Some scholars see Social Security as a form of forced savings which nudges lower-income workers to save for their future. Without reform, the Social Security system will become financially unsustainable as the number of retirees in the United States grows faster than the number of workers. For example, the 2004 Social Security Trustees Report shows the program running cash surpluses until 2018, with trust fund exhaustion projected for 2042.1 The 2004 forecast was not new; it was quite similar to what forecasters reported to President Clinton in the 1990s. 3 The Social Security Debacle The Social Security Debacle · 55 There are only two ways to solve the problem: cut benefits or raise taxes. Variants on the benefit-cut idea are to increase the retirement age in light of the steadily increasing life expectancies of Americans or to adjust benefits based on income or “need,” thus cutting retirement benefits for wealthier citizens. Not surprisingly, none of those ideas have excited elected officials. It is well-known that seniors are politically active and that middle-class workers are sensitive about payroll taxes.2 Clinton and the Congress A relatively new idea in the policy debate is better investment of Social Security revenues. In his 1998 State of the Union message, President Clinton’s Social Security plan included a provision calling for the federal government to invest a portion of the program’s trust fund in the stock market. Clinton also called for retirement accounts for low-income workers to supplement current benefit plans. Conservatives advocated a different idea that is more individualistic, allowing each worker some choice over how their funds are invested in the private market and how any residual funds are allocated when they die. For example, conservative House Democrat Charles Stenholm of Texas and Republican Jim Kolbe of Arizona proposed in 1998 a plan to allow workers to invest some of their Social Security in private accounts. The Stenholm-Kolbe plan was adapted from suggestions made by the Cato Institute, a think tank based on libertarian ideals. Two House committee leaders, Republicans Bill Archer of Texas and E. Clay Shaw Jr. of Florida, crafted an alternative plan in 1999 that permitted individual investment accounts to replace a portion of program benefits. The accounts would be invested 60 percent in stocks and 40 percent in bonds, with the aim of generating new earnings for retirees that might relieve some of the future strain on the Social Security system. Workers were not permitted to draw from these accounts until their retirement. Despite some interest from the Clinton administration, this plan did not gain any traction in Congress. It attracted little Democratic support and was criticized by conservatives because it did not permit individuals to pass their investment earnings on to their families upon their death. 56 · Bush on the Home Front During the Clinton years, no overhaul of Social Security came close to passage in Congress. The Republican leaders in Congress, Dennis Hastert in the House and Trent Lott in the Senate, were wary of considering any reform plan that did not have bipartisan support. Their wariness was rooted in the knowledge that Democrats have historically used Social Security as an effective wedge issue in campaigns by attracting nervous senior citizens to Democratic candidates . Public opinion polls show that voters trust Democrats more than Republicans on the Social Security issue, and thus many Republicans in Congress feared that highlighting Social Security would only benefit the Democrats.3 Democrats, in turn, fear that Social Security “reform” is a code word for either “privatization” or benefit cuts, both of which they see as harmful to lowerincome Americans, a core Democratic constituency that depends on Social Security for their day-to-day livelihood. It is estimated that Social Security income is the main means of survival for two-thirds of the elderly, and may prevent almost half of the elderly from being recorded as “poor.” Subgroups of Americans who are particularly dependent on Social Security include women, African Americans, and Latinos.4 Bush’s First Term When...