October 3, 2004

October 3, 2004 | Commentary on Political Thought

The coming battle over Social Security

During a recent campaign stop in Florida, Democratic presidential candidate John Kerry attempted to differentiate himself from President Bush. He noted that Disney World's Fantasyland was nearby and claimed, "The difference between George Bush and me is that I drove by it. He lives in it."

Clever. But when the campaign is over and the jabs forgotten, the next president will preside over a real-life demographic milestone. Three years into the next presidential term, in January 2008, the first member of the fabled baby boom generation will turn 62, opt for early retirement and receive that first Social Security check.

As with the first breeze that augurs the arrival of a Category 5 hurricane, this demographic moment at first will barely register on our public policy radar screens. But, as with the relentless approach of a deadly weather system, the first retirement will herald a relentless stream of first thousands, then millions more. By 2030, the number of Americans age 65 and older will double, peaking at nearly 80 million, and policymakers will stand face to face with an unbridled demographic hurricane.

All that explains why this election matters. The winner will be forced to admit that the Great Society, begun in 1965 during the presidency of Lyndon Baines Johnson, has ended and must be replaced by a new social compact every bit as ambitious and grandiose as its predecessor.

Johnson's so-called Great Society was supposed to help the poor, but it also drew the broad American middle class into its realm. Congress created Medicare, the now-gargantuan health insurance program for the elderly, in 1965 and steadily enriched Social Security benefits throughout the 1970s.

The greatest domestic test facing the man who wins this election will lie in overhauling the middle-class entitlement state to rescue the economy from fiscal ruin and give future generations a fighting chance to be upwardly mobile and enjoy dignified retirements.

How dire is the situation? For four decades, lawmakers led baby boomers to believe the arrangement that worked so well for their parents and grandparents somehow would work equally as well for them. This "pay-as-you-go" set-up works as long as the ranks of working-age boomers, whose payroll taxes underwrite the system, remain high. But, just as radar serves to warn those in the path of an incoming hurricane that today's calm seas and sunny skies will soon give way to gale-force winds, the trustees of the Medicare and Social Security programs warned us earlier this year of rough fiscal times ahead.

The trustees reminded us once again that the ratio of workers to retirees will continue to deteriorate and this, in turn, will result in "mounting draws on federal general fund revenues, exhaustion of trust funds . . . that would not permit payment of currently scheduled benefits, and unsustainable long-term growth in costs."

Indeed, this year for the first time Medicare officials were required to use general tax revenues, rather than proceeds from payroll taxes, to pay claims to hospitals. Without reform, Medicare and Social Security gradually will lay claim to an ever-larger share of our gross domestic product and will require younger workers to endure unfathomable tax increases to cover those costs.

Even though both middle-class entitlement programs sorely require a radical makeover, only one - Social Security - has generated the "to-reform-or-not-to-reform" debate this campaign season.

Sen. Kerry acknowledges that the current Social Security system is on a downward trajectory and will cover only 73 percent of promised benefits by 2042. But he describes this merely as a "challenge" and a "manageable" one at that. In his acceptance speech at the Democratic Convention in July, Kerry articulated only what he would not do.

"As president," he said, "I will not privatize Social Security. I will not cut benefits."

Precluding these two options, of course, leaves Kerry with only one possible course of action - raising taxes. Nevertheless, he contends we can resolve the problem through economic growth, the fiscal discipline achieved through enactment of his plan to cut the deficit in half in five years and the legislative bipartisanship on Capitol Hill that his presidency would inspire.

President Bush, in contrast, deserves credit not only for acknowledging the fiscal imperative to reform Social Security but also for spelling out a credible route to that reform.

During his convention speech, Bush placed Social Security reform into a broad framework he calls the "ownership society." "Many of our most fundamental systems - the tax code, health coverage, pension plans, worker training," he began, "were created for the world of yesterday, not tomorrow."

He promised to "transform these systems so that all citizens are equipped, prepared and thus truly free to make your own choices and pursue your own dreams." In doing so, he explained, "We seek to provide not just another government program," but rather "a path to greater opportunity, more freedom and more control over your life."

Bush offers a solution that fits naturally into his proposed "ownership society." "We must strengthen Social Security," Bush said, "by allowing younger workers to save some of their taxes in a personal account - a nest egg you can call your own, and government can never take away."

The president hasn't yet embraced a specific reform plan, but a growing number of his congressional allies have. The list includes Republican Reps. Sam Johnson of Texas, Paul Ryan of Wisconsin, Jim DeMint of South Carolina and Sens. Lindsay Graham of South Carolina and John Sununu of New Hampshire. Some Democrats also appear willing to lend a hand, most notably Rep. Charles Stenholm of Texas and possibly even Harold Ford Jr. of Tennessee, a member of the Congressional Black Caucus and one of the youngest members of the House.

Slowly, the perception that politicians who seek to reform Social Security are destined to suffer a political fate worse than death has given way to speculation that the next great leaders of Congress will be found within the hardy band of reformers who dare to tilt at this windmill.

Kerry, to his credit, broke ranks with Ted Kennedy and other Senate liberals to vote for the historic 1996 welfare overhaul. "In welfare, as in all other areas, there are those who so fear change . . . they prefer the status quo," he said back then. "I do not believe the status quo best serves those who are the unfortunate, the impoverished, the destitute, the left out in our nation."

But this time, faced with another imperative to replace an outdated and potentially destructive entitlement program, Kerry appears determined to play politics. He calls Bush's reform proposal a "scheme" that would require benefit cuts, diminish economic growth, increase the deficit and enrich special interests.

But at least President Bush acknowledges the problem and has set forth a compelling philosophical case that will serve as a road map for Social Security reform. Kerry, in contrast, is mired in denial and doesn't seem to know where to go or what to do on this important issue.

Michael Franc is vice president for government relations at the Heritage Foundation, a leading Washington-based public policy institution.

About the Author

Michael Franc Distinguished Fellow
Government Studies

First appeared in The Buffalo News