THINKING BIG:

Social Security Reform: Saving the system, saving grace (Andrew Grossman, December 8, 2003, Townhall)

After years of talking about it, the Bush administration looks to be gearing up for a push on Social Security, telling reporters that "it shouldn't surprise anyone" for the issue to move to the fore in coming months. Their timing couldn't be better. [...]

Last Monday, Steve Goss, the Social Security Administration's Chief Actuary released a memorandum estimating the financial effects of a reform plan developed by Peter Ferrara, a senior staff member of the Reagan and first Bush administrations. Goss's numbers show a complete elimination of the Social Security deficit over time, as benefit obligations shift to beneficiaries' own personal accounts, and an elimination of the current system's fiscal imbalance. Still, the Ferrara proposal has big accounts: 6.4 percent of wages--more than half the current Social Security tax--on average.

Ferrara's proposes that, during the transition period, current obligations be covered by four factors: the current trust fund (now merely a temporary surplus), a one percent reduction in the growth rate of federal spending for eight years, increased revenues from higher corporate investment, and the sale of bonds through around 2029. Goss estimates that these factors would put the system into permanent surplus in that year and that any bonds issued could be paid back within 15 years. Thereafter, the payroll tax could be reduced by 2.5 percentage points, leaving it at its bare minimum to finance remaining non-account benefits.

To woo liberals, Ferrara has added several sweeteners: progressivity and a benefit guarantee. While workers can contribute 5 percent of their wages to their personal accounts, they are able to contribute 10 percent of their first $10,000 in income, giving lower-income workers a greater opportunity to invest. And while workers would be free to invest their account assets in any of a number of stock and bond funds meeting Treasury Department standards, they would enjoy a safety net, set at the current level of Social Security benefits.

Though Ferrara's plan has received much attention this week (especially in the Wall Street Journal), interest is picking up in others'. Rep. Jim DeMint quietly released a plan earlier this year that features big accounts (from 3 to 8 percentage points of income) and that has been scored even more favorably than Ferrara's in terms of the temporary debt that it would impose and its risk to the government's finances. DeMint's is also progressive, like Ferrara's, and features a benefit guarantee. The Cato Institute is said to be in the final stages of crafting its own proposal, which will likely be attractive to those seeking big accounts. And just last month, Sen. Lindsay Graham released a plan with smaller accounts (4 percentage points of income) and an option for workers to stay in the current system.

Has a president ever run for re-election on a more radical program than Mr. Bush seems set on propounding?

MORE:
Choice and accountability (Michael Barone, Dec. 8, 2003, Jewish World Review)

Many conservatives are complaining that George W. Bush is a big-government conservative--or not a conservative at all. They complain about the Medicare prescription drug law he and the House and Senate Republican leadership pushed through, the first major expansion of Medicare since 1965. They call him a big spender, noting that discretionary spending has been rising more rapidly than under Bill Clinton. They complain that he pushed through the first education bill giving the federal government a role in setting standards. They complain about the farm bill he signed in 2002 and the energy bill he championed this year.

All those complaints have some substance. But for the most part Bush did not really campaign as a small-government conservative. A different theme runs through the major policies he advocated in the campaign and the major policy changes he has pushed through as president, a theme that can be summed up in two words: choice and accountability. The Bush tax cuts let you have the choice of how to spend more of your money, and you are, as always, accountable for the results. The education law forces the states to hold students and teachers accountable and gives them some choice in deciding how to do so. The Medicare prescription drug bill contains health savings accounts and competition experiments in 2010, which are attempts at providing more choice and more accountability. [...]

What is next on Bush's list? Social Security. In the past quarter century the private sector has moved from defined-benefit pensions to defined-contribution pensions. Defined-benefit pensions gave you little choice and no accountability: If the LTV Steel pension fund or the United Mine Workers hospital fund went belly up, you were out of luck (or lobbying Congress for a federal bailout). With defined-contribution pensions, you make the choice of how to invest the money in your 401(k), and you are accountable for the results.

Posted by Orrin Judd at December 8, 2003 8:53 AM