The State of the Union: A New Frontier of Freedom

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The State of the Union: A New Frontier of Freedom

February 3, 2005 4 min read
Michael Franc
Distinguished Fellow

Just as President Bush's uplifting State of the Union address in January 2002 will be remembered for its Churchillian call to arms in the war on terror, last night's speech will live on because the President committed himself unambiguously to opening up a new frontier of freedom on the domestic front-the sort of ambitious Social Security reform long envisioned by reformers at places like, well, The Heritage Foundation.


Sure, the President set forth a broad domestic agenda that includes spending restraint, reforms designed to modernize the "archaic" tax code and give families more control over their health care, immigration reforms that may prove to be decidedly unpopular on Capitol Hill, and energy policy reforms that would make us less dependent on foreign sources of oil. 


He also succumbed to the temptation to devote a portion of his address to a litany of small initiatives in disparate policy areas such as AIDS prevention, combating gangs, doubling the budget for the National Institutes of Health (didn't Congress just finish doing precisely that?), and so on.


But the part of the State of the Union with the longest shelf life will be the President's elaboration of his oft-stated desire to make Social Security fiscally solvent and allow younger workers to invest a portion of their Social Security payroll taxes in personal accounts that they own and that the government can never take away.


A few specific observations as to the significance of his address:

  • The stark visual impression.  The strong divide on Capitol Hill that we hear so much about in the media jumped out at viewers as the President made his case for reform. Some camera angles caught the partisan divide perfectly, with all the Republican members on one side of the House Chamber on their feet and applauding vigorously while the Democrats sat in stony silence on the opposite side. At one point, as the President explained how the unreformed Social Security system is structurally unsound, Democrats lost control and resorted to hissing and catcalling. 
  • A nod to Democratic reformers. Significantly, when the President paid tribute to Social Security reform ideas set forth by members of Congress, he focused exclusively on contributions from leading Democrats such as retired Senators John Breaux of Louisiana and Daniel Patrick Moynihan of New York, retired Minnesota Representative Tim Penny, and even former President Bill Clinton. He could have added former Nebraska Senator Bob Kerrey and former Representative Charles Stenholm to the list. While making the valid point that many prominent Democrats occupy honored places in the Social Security reform movement, it nevertheless is revealing that not one of those mentioned currently serves in Congress.
  • Moving the sense of urgency forward. The President focused not on the official date of insolvency-2042, when Social Security's so-called "Trust Fund" redeems its last Treasury bond and the program loses the financial wherewithal to pay 100 percent of promised benefits-but rather on the year when Social Security benefits first exceed revenues from payroll taxes, 2018. He correctly pointed out that the fiscal consequences of doing nothing hit us far more quickly than the do-nothing crowd admits. Once Social Security deficits appear in 15 years, they accelerate quickly and without mercy, reaching $200 billion as early as 2025. A particularly nice touch was the President's attempt to put this in perspective. Those of us with five-year old children, he observed, fret incessantly about paying for their college tuition, fully 15 years away. So why doesn't it make just as much sense for the people's representatives to address foreseeable problems like those confronting Social Security now, rather than wait for the crisis to hit? 
  • Offering some details of his plan: We know much more about the President's proposal now than we did 24 hours ago. We know, for instance, that the President will ask Congress to allow workers under the age of 55 to place 4 percentage points of their Social Security payroll taxes into personal accounts. This falls in the middle of the range of the personal account bills introduced in the last Congress. We also know that the accounts will be voluntary, that they will be phased in gradually, and that they will be modeled on the Thrift Savings Plan available to all federal employees and, significantly, to members of Congress. The President used one argument we will be hearing more of in the future, namely, that we should extend the same retirement "security, choice and ownership" to young Americans that we currently extend to federal workers. After all, if even the most incompetent federal employee can manage a personal retirement account, then why question the ability of tens of millions of taxpayers in the private sector to do the same?

Of course, we look forward to learning more about the specifics of his proposal. For instance, will low-wage workers be allowed to contribute proportionally higher amounts into their personal accounts than workers with higher incomes? One of the reform plans before Congress would offer low-wage workers precisely this sort of deal. Members who represent districts with large numbers of unskilled and low-wage workers may find it politically suicidal to resist such an approach. 


In many ways, last night's State of the Union flowed naturally from the broad philosophical rationales that the President employed in his Inaugural Address. Freedom is the watchword for this President, both at home and abroad. To liberate future generations from the shackles of the Great Society (the Social Security program envisioned by FDR was modest in comparison to the more generous and extensive complex of programs in place today) and give them ownership, choice, and control over such fundamental aspects of their lives as their retirement, health care, education, and financial security is a domestic legacy the President seems determined to pursue.


Michael Franc is Vice President for Government Relations at the Heritage Foundation.


Michael Franc

Distinguished Fellow