Bush faces uphill battle for Social Security reform

WASHINGTON -- Though they disagree on when, the experts are in accord that Social Security eventually goes bust.
    
    It was originally sold as a retirement insurance program; in reality, it is a direct wealth transfer, with taxes levied on the current generation of working Americans used to fund the checks sent to retirees. Whatever remains subsidizes the operations of the U.S. government in exchange for a series of IOUs.
    
    Until George W. Bush, any serious discussion of reform centered on one of two ideas: a) cutting benefits in any one of a number of ways including an increase in the retirement age; or, b) increasing the payroll tax.
    
    From a political standpoint, neither was a good option because either would inflict tremendous pain on the political class.
    
    In instances such as these, the default position -- to do nothing -- usually wins out, unless the voters are chasing members of Congress down the street demanding change while carrying signs and pitchforks. The absence of said activity has lulled some Capitol Hill Republicans into a false sense of security, believing the collapse is far enough away to avoid doing something about it now.
    
    This is one of the reasons people are asking already if Bush's signature second-term domestic proposal is stillborn.
    
    Bush advocates adding personal retirement accounts to Social Security, diverting a bit of the tax each worker pays into an account they would own. The theory is that, even at a relatively small level, PRAs would create earnings that would outstrip whatever Social Security could eventually pay out. Over the last five years Republicans as diverse as South Carolina Gov. Mark Sanford, Sen. John Sununu, R-N.H., and the notoriously risk-averse Sen. Elizabeth Dole of North Carolina have campaigned on the issue and won. So what's the problem?
    
    First, there is the White House itself. There is a growing belief within pro-reform circles that a small clique exists within the White House that would prefer to do nothing because they fear the potential economic and political costs. Since Nov. 2 they have been the source of leaks -- something unheard of in the pre-election first term -- pointing up the downsides of reform.
    
    Then there are those, mostly but not exclusively inside the Office of Management and Budget, who are said to be obsessed with getting the cost of reform down. These "bean counters" keep trying to find new paths to reform on the cheap -- like cutting benefits for future retirees -- because they believe Bush's reforms are too expensive.
    
    This is nonsense. As supply-side economist Stephen Moore recently explained in National Review, "a disarmingly simple method to blow through the government accounting smokescreen," has been developed by Dr. John Templeton, Jr., founder and chairman of Let Freedom Ring, Inc., a conservative 501c4 non-proft organization and the son of the Templeton Funds founder.
    
    His Templeton Curve, a graph showing two possible outcomes for Social Security, demonstrates visually how the existing system will generate surpluses for another decade or so before Social Security is buried in an avalanche of permanent debt as the baby boomers retire.
    
    Templeton's second formulation, something the pro-reform lobby wishes the White House staff members working on the issue had tacked on their walls, shows how the borrowing necessary to underwrite the creation of generous personal retirement accounts now is eventually paid back as future workers draw their retirement incomes from the PRAs instead of Social Security. "Starting in 2015," Moore said, "the returns from these accounts will begin to cancel out Social Security's benefit requirements. By 2040, nearly 40 percent of future obligations will be wiped clean, that figure rising to two-thirds by 2050."
    
    Incidentally, 2042 is the latest year in which Social Security is predicted to go bust -- the date fixed on by those who say there is no need to do anything now.
    
    On Capitol Hill there are those like Sen. Lindsey Graham, R-S.C., who have already conceded reform is not possible without a tax increase. Graham has generously agreed to the removal of the cap on earnings subject to Social Security as a good place to start and has already conducted "talks" with Democrats and other Republican senators on how to move the issue forward. This without knowing what the White House is going to propose and in seeming ignorance of the reality that tax hikes -- even dedicated ones -- always fuel increases in spending.
    
    Then there is House Ways and Means Committee Chairman Bill Thomas, R-Calif., who -- and though more has been made of the idea that this constitutes a fight with the White House than is fair -- has proposed doing Social Security reform and fundamental tax reform, another Bush priority for the second term, at the same time. There is nothing intrinsically wrong with that idea; in fact, that the debate should be bigger, as Thomas has suggested, is actually helpful. What is not helpful is his suggestion a new, European-style value-added tax, which would be the engine driving an orgy of new spending and growth in the government, could be used to pay the transition costs associated with personal accounts.
    
    All this is just the preamble to the real problem: Congressional Democrats, their party committees, their 2008 presidential candidates and their governors are coming together around the idea that the way to deal with a Bush reform plan is to just say, "No."
    
    Their political read is that the scope of the change is so large that it can easily be made scary -- which, where changes to Social Security are concerned, is their standard response. In fact, it can be made scary enough to derail the plan and the entire Republican majority. Using a plan from the GOP's 1994 playbook, Democrats are starting to look like Republicans fighting ClintonCare. And the White House shows no sign of being ready for what is about to hit.