Lindsey Graham's Talk of Higher Taxes Endangers Social Security Reform

Republicans and the Bush administration are bleeding badly on Social Security from scores of self-inflicted wounds by some members of Congress, as well as low-level staffers and political appointees who can’t see beyond their green eyeshades. By insisting that any reform of Social Security involving the creation of personal retirement accounts must be accompanied by benefit cuts, tax increases and/or hikes in the retirement age, these Washington functionaries are draining personal accounts of their vitality, jeopardizing Social Security reform and ultimately endangering the Republican congressional majority.

Tom Davis (R.-Va.) has gone so far as to announce that the president has a problem getting this through. Furthermore, Davis estimates that roughly 30 House Republicans, including himself, are inclined to oppose Social Security reform – more than enough defections to scuttle legislation and certainly enough to embolden “do-nothing” Democrats to dig in their heels, which is precisely what they are doing.

Rather than John Kerry’s defeat enticing some courageous Moynihan Democrats to step to the fore on Social Security, Republican pandering on tax increases, limiting the size of personal accounts, cutting benefits and raising the retirement age have only emboldened Democrats to adopt a head-in-the-sand attitude on Social Security. Word is circulating that Democrats now have visions of turning personal retirement accounts into President Bush’s “HillaryCare.” Who can blame them? When they smell weakness within Republican ranks, even thoughtful Democrats can’t be blamed for calculating they can let the Republicans self-destruct, deprive Bush of the credit for reforming Social Security and come back in four years to take credit themselves.

Sen. Lindsey Graham (R.-S.C.) says Democratic intransigence on personal accounts means that any personal accounts plan will have to be accompanied by tax increases, but “only on the rich.” The Graham approach closely resembles Option No. 2 from the president’s Commission to Strengthen Social Security. The Option No. 2 “4 percent” account is really a “small account” because it has a $1,000 income cap, which makes it a 1-percent account for a worker earning $75,000 – ridiculous.

The latest gaff came from within the administration itself when the chairman of the president’s Council of Economic Advisers, Gregory Mankiw, said that benefits scheduled for future generations under current Social Security law are “empty promises.” Any personal retirement accounts plan, he implied, would have to be accompanied by future benefit cuts.

By attempting to combat Democrats’ intransigence by appeasing them, i.e., offering up tax increases, benefit cuts and increases in the retirement age, Republicans will get sucked into a political undertow that pulls the GOP and the Bush administration under to defeat. It will be “good-Dem/bad-Dem” as a few Democrats keep Republicans busy negotiating behind the scenes while the rest of the party keeps up an incessant drumbeat of partisan criticism.

At each concession by Republicans, intransigent Democrats will say it’s not enough and dial up the public criticism. If Republicans redouble their efforts to compromise, Democrats will continue their stonewalling and play hard to get. They will force the Republicans into designing such an unworkable Rube Goldberg device with so much pain and complexity sewn into its fabric that the American people will reject it just as they rejected HillaryCare.

Remember when Hillary Clinton almost single-handedly destroyed the Democrat congressional majority by creating a national health-care plan that would have raised taxes, increased the cost of health care and reduced health-care benefits? Some Republicans are on the verge of repeating Clinton’s mistake with personal retirement account schemes that cut benefits, raise taxes and increase the retirement age. Not only does this place Bush’s legacy on Social Security reform in jeopardy, it also endangers Republican control of the House and eventually the Senate.

Recent news accounts quote Bush adviser and confidant Karl Rove reminding lawmakers perspicaciously that no Republican member of Congress has been defeated in the last two elections when their campaigns relied in part on Social Security reform. He could have gone farther and added that none of those winners ran on or won by insisting that tax increases, benefit cuts or increases in the retirement age were necessary accompaniments to personal accounts. Any personal-accounts reform plan put forth now that involves benefit cuts or tax increases will be dead on arrival on Capitol Hill, spurned by many Republicans who fear – and rightly so – that they won’t be able to defend tax increases or benefit cuts when they must stand for re-election in less than two years.

The president should go to the American people, as Ronald Reagan did, and articulate his vision of an ownership society and what he means by democratizing our capitalistic system for workers and low-income people. He could tell them the U.S. economy is in excellent shape, despite what the New York Times headlines may say, and with the correct policies in place it will remain so into the foreseeable future.

That said, we do have a problem with our national retirement system: Social Security has a large unfunded liability – $12 trillion in present-value terms – but the solution is not to raise taxes or cut benefits or force people to work longer. The answer is to refinance our unfunded liability, just as any corporation in the same situation would do, and shore up the system by allowing workers to pre-fund their own retirement through personal accounts they own and control.

That’s what we’ve got to do with Social Security. We’ve got to refinance the unfunded commitment we have made to current workers and retirees and put in place personal retirement accounts of sufficient size so that workers can pre-fund their own retirement. With leadership, the impending crisis in Social Security funding can be transformed into a historic opportunity. It will require investing a great deal of political capital, but the returns are well worth the risk.