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Democrats Can’t Just Criticize on Social Security

It’s time for Democrats to declare what kind of Social Security reform they favor. Even former President Bill Clinton thinks so. Yet the Democrats persist in attacking President Bush’s ideas — often misleadingly. [IMGCAP(1)]

Clinton told ABC’s “Good Morning America” — in an exchange curiously not broadcast — “I think Democrats should say what they are for on Social Security in the next couple weeks. … Democrats should have a plan and they should talk to the president and Congressional Republicans about it.”

According to ABC’s political blog, The Note, Clinton said he didn’t think Democrats deserved criticism for not producing a plan yet and that they still had time to produce one. But he added, “I think they need to come up with a plan of their own.”

Democrats had a good opportunity when the Ways and Means Committee launched Social Security hearings. But they blew it.

As in the past, all Democrats did was attack Bush’s plan, demand that he take it “off the table” before any bargaining begins and question the bona fides of a Democratic expert, Robert Pozen, whose “progressive indexing” proposal the White House has endorsed.

Rep. Charlie Rangel (D-N.Y.), the ranking member on Ways and Means, actually said he didn’t care what the substance of Pozen’s plan was. It was sufficient to disqualify Pozen that he’s an investment banker.

One Democrat after another adopted the line that Bush plans “deep cuts” in Social Security benefits “to pay for private accounts” and that practically every retiree will suffer losses through the combination.

But the “deep cuts” notion ignores that fact that, under current law, benefits will automatically be slashed by at least 27 percent for everyone in 2041, when the Social Security system is expected to go bankrupt.

Bush’s plan will slow the rate of increases in benefits for many retirees to keep the system solvent, and will allow younger workers the chance to invest part of their Social Security taxes in private markets to lessen the losses.

Democrats say, consistently, that Bush wants to “privatize” Social Security, as though all 12.6 percent of an individual’s payroll taxes would be invested in the stock market. In fact, he’s creating an opportunity for 4 percent of it to be invested. At worst, that’s “partial privatization.” And, it’s voluntary. No one would be required to take part.

Moreover, the Social Security system’s actuaries, whom everyone relies on for accurate analyses of various plans, confirm that under the Bush-Pozen plan no one would ever receive a smaller benefit than current retirees do.

Democratic charges of “cuts” refer to reductions below promised benefits which are unsustainable without significant tax increases and which are scheduled to be reduced under current law.

Pozen’s “progressive indexing” plan is designed to ensure that lower-income workers are fully protected against any “cut” in benefits.

According to the actuaries, in 2050, a low-income retiree (whose average earnings were in the lowest 20 percent) would be entitled to $866 per month if currently promised (but unsustainable) benefits are paid.

If no reforms are undertaken and automatic cuts go into effect, the benefit would be slashed to $653 per month. Under the Pozen plan, which indexes benefits for lower-income persons to average wages, recipients would get 100 percent of the promised benefit, $866.

People in the middle 20 percent of wage-earners are being promised $1,670 a month, but will get only $1,208 if automatic cuts go into effect.

Under Pozen’s plan, this group’s benefits would be indexed half to prices (which rise more slowly than wages) and half to wages, with the benefit worth $1,380 a month in 2050.

Those in the highest 20 percent of wages are being promised $2,127 a month in 2050, but would get $1,527 if automatic cuts go into effect. With their benefits pegged to prices, they’d get $1,626 under the Pozen plan.

The people who eventually would get less than the benefits available after automatic cuts are that same cohort of high-earners — the highest 20 percent, but their cut only kicks in starting in 2075. They would get 10 percent less.

Even though Democrats portray themselves as protectors of the poor and middle class, they’ve started attacking Pozen and Bush for “means testing” Social Security and thereby threatening to turn it into a “welfare” program, undermining its “universal support.”

But as the numbers above indicate, Social Security benefits already are tied to average incomes. Moreover, even though higher-income earners get more benefits than lower-income workers, current law (and the Pozen plan) gives the poor a higher percentage of their average pay. Also, Social Security benefits are taxed at progressive rates.

So “means testing” already exists. Private accounts would give lower-income workers, if they choose, an opportunity to own a piece of the economy, as middle- and higher-income people do through 401(k) accounts and IRAs.

By opposing both private accounts and benefit reductions, Democrats have left as the only logical alternatives a tax increase and/or the extension of the retirement age. Both of those deserve to be considered — and so does the proposal by Rep. Nancy Johnson (R-Conn.) that homemakers be credited with earnings for benefit purposes.

There is certainly room for improving on Bush’s proposals. But for that to happen, Democrats have to put forward some ideas.

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