To: "homestead AT lists.ibiblio.org" <homestead AT lists.ibiblio.org>
Subject: [Homestead] Social Security, Clinton and Bush
Date: Wed, 13 Apr 2005 07:41:22 -0700
Fitting the Bill?
How would Clinton have saved Social Security?
By Kevin A. Hassett & Maya MacGuineas
One sidelight of President George W. Bushs recent trip to Rome for the
funeral of the pope was the apparently warm interaction between Presidents
Bush and Clinton. In particular, Bush praised Clintons thinking in the
area of Social Security. This praise focused the public eye on an
underappreciated fact. President Clinton devoted an enormous amount of
effort to the study of Social Security reform. It may well be the case that
Social Security reform would have been accomplished if impeachment had not
taken over the agenda.
With that in mind, it is instructive to wind back the clock and look at how
Social Security reform played out back then, and compare it to the current
episode.
The statement that the Social Security system faces a long-term crisis has
been met with cries of protest, but during his presidential tenure, Clinton
made the same point. Just as Bush has made Social Security his number one
domestic agenda item today, President Clinton put the issue ahead of all
others with his Save Social Security First campaign. And like Bush, who
is a champion of individual investment accounts, Clinton considered
accounts a central component of reform. It is likely that this view,
combined with the strong support of congressional Republicans for personal
accounts, would have set the stage in the late 1990s for a grand bargain on
Social Security.
Clintons 1994-96 Advisory Council on Social Security, which was arguably
less stacked than the one Bush appointed, concluded that actuarial balance
was not a strong enough goal. Instead they set forth the standard that the
ratio of the trust fund to benefits needs to be flat or growing at the end
of the 75 year period a goal that is basically mirrored in President
Bushs objective of sustainable solvency. But today, reform opponents
want to stop the clock at 75 years.
Furthermore, all three factions of the Clinton panel supported a reliance
on equity investments at least in part, a practice that current opponents
of personal accounts argue is too risky. The panel members disagreed on
whether investment should be made by individuals or centrally through the
trust funds, with a majority supporting individual accounts. As Douglas
Elmendorf, Jeffrey Liebman, and David Wilcox, all veterans of the Clinton
administration, remark in their paper, Fiscal Policy and the Social
Security Policy During the 1990s, the idea of individual accounts had, in
a few short years, made a remarkable transition from the white papers of
libertarian think tanks to the mainstream policy debate. Such an
acknowledgment should help to dampen accusations that accounts are little
more than a right-wing conspiracy.
The Clinton administration was quite serious about personal accounts and
made significant inroads in figuring out how they might work. Experts
within the administration investigated in great detail options to minimize
both the risks and the costs of creating accounts. Their work provided a
number of important and interesting contributions in the policy arena. For
example, one challenge in structuring accounts is the timeliness in which
deposits can be made. The working group at the Clinton Treasury developed a
plan whereby deposits could be made based on previous years earnings and
reconciled later. They also developed a model where workers could make
their investment choices on their annual tax forms. Another option they
looked at to minimize costs was to not allow any level of investment choice
until an account balance reached a minimum amount, an idea that has since
become popular in a number of more developed account-based plans. While
they recognized that new risks would be introduced by investing in stocks,
as the paper reports, On balance, however, the economic team did not think
that market risk was a sufficiently important concern to rule out plans
that involved equities.
It is important to note that these accounts would have been supplemental
though analyzing the impact of this is impossible without knowing how the
rest of Social Security would have been balanced. (For more on this see
Hung Up on Words.) There is one more similarity. Many opponents of Social
Security reform continue to comment on how the real problem is Medicare.
(Though few of them have actually proposed anything constructive to fix
Medicare.) That is true today just as it was true when the Clinton
administration pursued Social Security reform. However that does nothing to
undermine the argument that Social Security needs to be fixed in fact, it
makes the argument stronger.
If a patient has been bitten by a rabid animal, you fix the cut and then
you give him medicine. You need to start somewhere. Fixing the cut first is
not a sign that you plan to withhold medicine in the future. The Clinton
administration recognized this without setting off alarms on the editorial
pages. Bottom line: Fixing Social Security is just as important today as it
was when Clinton wanted to tackle the job more so, in fact, since years
have elapsed.
Given how many areas of agreement there were in the Clinton 90s on Social
Security reform, one would think the possibility for broad-based bipartisan
compromise would still exist today. To be sure, the fiscal environment has
changed dramatically, making the options more difficult. But the underlying
problems facing Social Security remain. Perhaps the rhetorical hugs in Rome
can serve as the starting point for turning those many points of agreement
into a bipartisan plan.
Kevin A. Hassett is director of economic-policy studies at the American
Enterprise Institute. Maya MacGuineas is the director of the fiscal-policy
program at the New America Foundation.
* * *
[Homestead] Social Security, Clinton and Bush,
Gene GeRue, 04/13/2005