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"Hell no, we won't go" is the wrong liberal approach on Social Security reform.


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Pride and Prejudice

"Hell no, we won't go" is the wrong liberal approach on Social Security reform.


Tuesday, February 1, 2005 12:01 a.m. EST

The late Pat Moynihan used to joke when I asked him why liberals were so reluctant to consider changing Social Security so that it guaranteed wealth as well as income: "It's because they worry that wealth will turn Democrats into Republicans." Leaving aside that possible correlation, it will be a shame if liberal voices, values and ideas are not brought into the debate initiated by President Bush's Social Security reform proposal. To make certain the reforms are done correctly liberal thinking is urgently needed.

There is no doubt that Social Security and Medicare are two of liberalism's most enduring and popular triumphs. And there is no doubt that a vocal and influential minority remains true to its strong conservative belief that the Social Security Act of 1935 and the 1965 amendments to this act, which created Medicare and Medicaid, represent socialistic and dangerous interferences with the marketplace. However, liberals are wrong to fear that President Bush's proposal represents a threat to Social Security.

I sincerely hope they do not merely defend their proudest achievement. I hope they see that President Bush is giving them an opportunity to finally do something about the rich getting richer and the poor getting poorer.

First of all, fears that Social Security will be destroyed are exaggerated. Across all generations and within both major parties, Social Security and Medicare are seen as a vital part of American life. They represent a powerful intergenerational contract between younger Americans in the work force who agree to be taxed on behalf of older, eligible Americans. What makes the contract work is that the expectation of those in the work force is that when they pass the age of eligibility, successive generations of workers will not object to the taxes that must be imposed on them to cover the costs of their income and health benefits.

Secondly, President Bush's fears of a bankrupt Social Security and his rhetoric of the program being in financial crisis are also exaggerated. Relatively small changes in taxes and/or benefits would restore the promise to all living beneficiaries--those eligible today and those eligible in the future. Unlike the situation that existed in 1983, when Congress and the president acted to avoid a financial crisis, today's financial problems are relatively small.

On the other hand, there are two problems with Social Security that are serious enough to be called a crisis. The first is that in eight years the income from a 12.4% payroll tax will be insufficient to pay the old age, survivor and disability benefits owed at that time. From that point on, Social Security will begin to redeem some of the hundreds of billions of dollars of Treasury bonds it has "accumulated in the trust fund" in order to issue monthly checks to beneficiaries.

Though these bonds are far from "worthless," as some critics allege, the picture of them "accumulating in a trust fund" is not accurate either. That is because, in order to convert these bonds into cash, the U.S. Treasury will use the cash from individual and corporate income taxes. While some income taxes are currently used to pay Social Security benefits, the dollar amounts do not pose a serious budgetary challenge. In eight years that will change. Coupled with the cost of Medicare and Medicaid, the annual benefit demands of Social Security will put real pressure on Congress to cut spending on defense and nondefense appropriations.

It is at this point in time that the demographic and monetary demands of the baby boom generation will become painfully apparent. The disinvestment in public infrastructure caused by the growth in Medicare and Medicaid will become even worse than it is today. And the nature of this crisis will be considerably more daunting than that faced squarely by Congress and the president in 1983. Liberals, who have silently watched the share of state and federal spending apportioned to the elderly grow at the expense of education, training, child care and research, will be appalled to discover how much their silence has cost them.

The second crisis is the one for which liberals are even more urgently needed. This crisis is the shockingly low rates of savings and pitifully inadequate amount of preparation being made by American households for their old age. If liberals were to join this debate and insist upon provisions that would lead to dramatic reductions of the numbers of poor elderly, the outcome could be a dramatically enhanced quality of life for all, reduced dependency upon welfare in old age, and downward pressure on the social costs of growing old.

If liberals joined this debate they would insist that the guaranteed transfer payment of Social Security remain intact. With the evidence that trade, technology and immigration are putting downward pressure on unskilled wages, they might even be able to succeed in changing the current benefit formula so that more than 50% of the first $900 of income was replaced. Perhaps they could even convince their Republican colleagues to eliminate penalties that affect stay-at-home women.

Liberals would fight to make certain that contributions to private accounts were progressive in order to benefit lower-wage workers. They might even argue that accounts be opened at birth, thus giving Americans the longest possible time to accumulate wealth. No doubt they would insist that investment options be carefully regulated to keep administrative costs and risks as low as possible. And since liberals oftentimes understand the good that markets can do even more than some of their conservative colleagues, they could see the wisdom of changing the tax code so that no income taxes were levied on income that went into these savings accounts. All of these would practically guarantee a muscular market response that would give future Americans larger amounts of insured non-employment income to add to the $800 per month on average they receive from Social Security.

None of this will happen if liberals merely shout "hell no, we won't go." The best they can hope for with that strategy is to prevent reform from happening. They should feel no pride of accomplishment if that is the result.

Mr. Kerrey, a Democratic former senator from Nebraska, is the president of New School University, in New York City

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