Despite Public Disdain, Private Accounts Will Not Die

The issue of Social Security reform is gathering steam once again as President Bush wraps up his "60-cities-in-60-days" tour to sell his privatization plan to the public. Although the latest polls show more Americans oppose the president's proposal than ever, recent congressional hearings continue to keep the plan on life support.

On April 26 the Senate Finance Committee held a hearing [1] on Social Security solvency, in what could possibly be the final Senate hearing before Committee Chairman Charles Grassley (R-IA) delves into crafting legislation. The hearing focused on the issue of achieving solvency within the benefits program but also covered the widely-discussed idea of private accounts. While witness Peter Orszag of the Brookings Institution focused his testimony on the importance of solvency, other witnesses, such as Peter Ferrar and the Cato Institute's Michael Tanner, chose instead to discuss what they believe would be the benefits of personal retirement accounts. Grassley praised witness Robert Pozen's Progressive Price Indexing plan because, according to Grassley, it "seems like a compromise." Critics of Pozen's plan [2], however, believe it will result in benefits cuts for too many people.

The hearing was well attended by senators serving on the committee, many of whom asked witnesses pointed questions regarding how reform would impact the national level of debt, how much risk private accounts would create for beneficiaries, and how to avoid across-the-board benefit cuts. For some senators, this issue is very personal. Sen. Trent Lott (R-MS) discussed his elderly mother and Grassley exhibited intense anxiety about what kind of a benefits program would exist for his grandchildren.

Other members of the committee had a different focus to their comments, framing the Social Security debate in a larger context. Sen. John Kerry (D-MA) commented with frustration that both Congress and the administration had wasted precious months focusing on small details such as private accounts while avoiding the bigger issue of solvency. He discounted the "crisis" mentality, saying "we do have enough money to pay benefits," and that the entire seventy-five year Social Security shortfall is equivalent to one-fifth of the cost of making the president's tax cuts permanent. (See statistical analysis [3].) Sen. Kent Conrad (D-ND) focused on misplaced priorities, stressing the Medicaid and Medicare programs face a much greater fiscal crisis than Social Security, calling Medicare "the real eight-hundred pound gorilla."

For months, Democrats in the both the Senate and House have remained unusually united against any Social Security reforms that would cut benefits for recipients in the future. At an April 26 "anti-privatization" Social Security rally on Capitol Hill, sponsored by Americans United to Save Social Security [4], scores of congressional Democrats stood on stage before the rally participants showing their unity in opposition to private benefits accounts. House Minority Whip Steny Hoyer (D-MD) was one of many to address the crowd, saying, "Democrats, as you have seen, are seeing, and will see, are absolutely united in opposition to the Republican plan to privatize one of the most important programs this country has ever adopted."

Despite unified Democratic opposition and an unsuccessful nationwide campaign, President Bush held a prime-time televised news conference [5] on April 28 in a last ditch effort to rally support for his dying proposal. Bush reiterated his belief that private accounts would be the best way to solve issues of Social Security solvency. In a change of strategy, he stated he did not want reforms to cut benefits for low-income workers, who represent a traditionally Democratic demographic. In doing so, the president made it clear there would be cuts in benefits to middle and upper-income beneficiaries and Democrats immediately lashed out at the president for proposing a means-test that would translate into cuts for average American retirees. Bush repeated during the news conference what has become increasingly clear over the past several weeks -- that is it is up to Congress now to achieve an actual solution. Chairman Grassley will undertake the task of drafting legislation to reform Social Security in the Senate. He will begin by working solely with members of his own conference on the legislation, although aides have noted Democrats on the Finance Committee, all of them opposed to private accounts, may end up helping. Grassley is expected to look seriously at key aspects of Pozen's plan.

In addition to the Senate's efforts, the House Ways and Means Committee will also be exploring Social Security reform and plans a full hearing on May 12. The hearing will be followed by an ambitious schedule of subcommittee hearings -- about one a week, according to Chairman Bill Thomas (R-CA). The committee will study specific details such as adjustments to the payroll tax, changing the retirement age, retirement benefits for dual earners, and how the current benefit structure is unfair to women. Thomas expects the committee will begin writing legislation in June.