Universalism and Social Security

Steven Bainbridge, a conservative blogger who I had a fascinating exchange with on internet politics once, suspects hopefully that maybe, maybe it's just possible that Bush's proposal to convert Social Security into a welfare program might actually have less to do with saving it that with undermining its long-term political support:

Has Bush suddenly become a redistributionist, soak-the-rich pinko? I doubt it. Instead, I suspect there may be something else going on here. William Voegli recently reminded us of what he calls The cynical idealism behind Social Security:

    Wilbur Cohen, who devoted half a century in government to designing and defending America's social insurance programs, gave his answer in a 1972 debate with Milton Friedman on Social Security: 'I am convinced that, in the United States, a program that deals only with the poor will end up being a poor program. . .'

Since Social Security long has been the third rail of US politics, maybe Bush thinks the prospects of serious changes in the program will be stronger in the long-run if political support for it is weakened.

Um, yeah, maybe. You think so? Ensuring broad support for the program is exactly why some of us so strongly oppose raising the payroll tax cap, a far milder form of means-testing. Social Security is a pretty good deal for almost everyone, even compared to risk-adjusted private investment options. Why mess with that?

One fascinating aspect of the Bush campaign to privatize Social Security has been the desperate attempt to find some constituency, somewhere, for whom Social Security is a manifestly bad deal. And it's amazing how hard it has been for them to do it:

First there was the claim that it's a bad deal for African-Americans. That was one that you didn't know whether to laugh at or be offended by. (My colleague Marcellus Andrews probably did the best job of combining the two emotions.)  Then there was the claim that it's a bad deal for younger workers, but that depends entirely on the premise that the government will chose to default on the Treasury bonds.

Finally, as you could see in Bush's press conference Thursday night they've identified a constituency that supposedly doesn't get a good deal from Social Security:  It's a widow or widower whose spouse dies shortly before retirement. The surviving spouse would get either his/her own benefits, or the spouse's, whichever is higher, "but not both," as Bush points out. And that's true. Of course, if the spouse dies and leaves children under 18, survivor benefits under Social Security will be a lifesaver for the family.  (As Hans Riemer of Rock the Vote points out, young people are familiar with Social Security and like it, because they think of it as the program that helped Johnny's family when his dad died.) And if the widow didn't put in at least ten years in the workforce herself, or didn't earn as much money, the benefits through her husband's Social Security are much more than she would get on her own. So, to summarize Bush, the person for whom Social Security is a raw deal would be a widow or widower whose spouse dies at, say, 60, after the kids are grown but before retirement, and in a household where both spouses worked for much of their adult lives at relatively comparable incomes. The system is "unfair" to that widow or widower, according to Bush, because she only gets Social Security benefits for one person, not two.

It's a pretty cool social program that's a good deal for everyone except a person in that particular situation. And what's so bad about one person's getting benefits for one person anyway?

(Of course, as was finally pointed out in the Senate Finance Committee hearing last week, the forced annuitization feature of private accounts means that they're not really inheritable either, at least not after the annuitization has occurred.)

Anyway, Bainbridge thinks this will create some paralyzing dilemma for Democrats:  "the nice thing about Bush's plan is that it forces the Dems to make a tough choice: Do they publicly disavow their adherence to soaking the rich progressivity as a solution to income inequality or do they risk weakening long term political support for their signature program?" John Tierney adopts the same "tough choice" argument in his New York Times column Saturday.

What's silly about this is the failure to see just how not-tough a choice this is for Democrats. We would have to be insane to accept a change that creates a huge, middle-class constituency for whom Social Security would be a demonstrable rip-off. 

Outside of a tiny handful of House Democrats, maybe, and a few intellectuals, you won't hear a voice raised in favor of "soaking the rich progressivity." Until Bush forced Social Security onto the agenda, few liberals were pushing for changes to make it more than the most mildly redistributive program. We oppose tax cuts that go overwhelmingly to the wealthy, but that doesn't mean that we are pushing for a return to 80% tax rates on the wealthy. Liberals understand, as Tierney does not, that Social Security is not an inefficient anti-poverty program, but a broad-based social insurance program.

In some ways, the problem for liberals is that we are, if anything, too familiar with the merits of universalist programs like Social Security. Most Washington liberals, Hill staffers, campaign staffers, etc., have been thoroughly indoctrinated, either directly or indirectly, in the doctrine best expressed by Theda Skocpol: that successful programs are those "that reach a huge cross-class constituency," with Social Security always the model. Twice in the last ten years, I've been told in a voice of absolute certainty that, "the first thing I learned in graduate school was that only universal programs work."

So there's no doubt that preserving Social Security, the original model of a universalist program, and not letting it become a targetted welfare program that leaves a large category of middle class people worse off, will be an easy call. In fact, I suspect that the words "progressive indexing" may never be heard again after a week or so. There's no tough choice here.

But there is a limitation to the dogmatic understanding of the importance of universalism. It is easy enough to preserve Social Security -- but how do you build a new program? If successful programs are universal, that means we can't have a health care program that's targetted principally at the uninsured. If we want to deal with education, can we concentrate resources on the 20% or so of schools that are really disastrous, or do we have to provide something for everyone. Without resources, universal programs will inevitably be very thin programs, fairly modest benefits for a huge cross-class constituency. There would be real daring, real opportunity to make big changes if liberals went not necessarily for "soak the rich progressivity," but for a clear message that our well-being as a society is measured by how we treat the worst-off, and a moral agenda of targetted, rather than universal, programs.  In both his 2004 campaign and in what appears to be the beginnings of its 2008 rerun, John Edwards has been the closest to this potentially liberating insight.

But for an existing program like Social Security -- forget it. Universal was good enough for FDR, it's good enough for us.

Comments

[Leo]

As a member of the Vast Right-Wing Conspiracy who regularly reads this blog, I would like to pipe in with my view. I believe that personal savings accounts (PSAs) within Social Security would do everything advertised by their proponents, but I nevertheless oppose them because of the arguments raised by Robert Samuelson, viz., given the large sums of government money involved; the inevitable "filters" that would be placed on the investment choices (gay-friendly companies, yes; firearms manufacturers, no); and the overly risk-averse nature of the investment options, there would be a major distortion of the market's ability to reward successful risk-taking. To a conservative, preserving the integrity of financial markets is of overriding importance, and easily trumps the likely benefit of helping the less well-off and of rescuing the system.

Having said that, what options remain for rescuing the system? Some on the left (e.g., Mark Schmitt) oppose raising the payroll tax cap; they say this would undermine political support for the program. Others on the left oppose any reduction of benefit levels, whether "progressive indexing", means testing, or whatever; ditto. On the right, there is deep and wide opposition to raising the percentage of the payroll tax over its current level. Each side in this will be able to checkmate proposals put forth by the other side. All that remains is to tinker with the retirement age (again).

Tactics employed by the Democrats in opposition to Bush proposals will be embraced by the Republicans in opposition to Hillary proposals...you can count on it. I know that this view will be unpopular on this blog, but soon, there will have to be constructive engagement between the two sides in some effort to cobble together a package that passes the "hold your nose and vote yes" test. Keep in mind, to those who would like to see the program collapse, nothing would be better than to have Bush walk away from the issue and declare that it will have to be decided by another President and a future Congress.

[Jeff L.]

Leo,

Could you please explain how "to those who would like to see the program collapse, nothing would be better than to have Bush walk away from the issue and declare that it will have to be decided by another President and a future Congress." Thanks.

[yoyo]

The obvious compromise will involve some 50-50 combination of benefit reduction and tax increase. But that will only happen once we quit this monkey business of private accounts.

[Leo]

In response to Jeff,

Any corrections prior to the point where Social Security outlays exceed revenues will be mild by comparison with measures that might be entertained later. As with trajectory corrections on a space mission, early-mission adjustments are small and easier to effect than those that might occur later. Everyone should welcome steps that might be taken before Social Security starts to display negative cash flow in 2017. At that point, Social Social benefits-promises will begin to have an impact on overall federal borrowing and spending. Such current steps might include a small increase in the payroll tax percentage, an additional ratcheting up of the retirement age, or other measures whose effects would be magnified over a long time horizon. If we cannot build political support for small steps in 2005, what are the prospects for larger adjustments in 2009? That is what I meant by the statement that walking away from the issue now and leaving it to another President and a future Congress will inevitably please those who wish to weaken Social Security. However, we are in the midst of rejectionism by both sides, so I am not optimistic about a present accommodation.

I speak as a conservative who has reluctantly reconciled myself to some aspects of the welfare state. I do not wish to see Social Security damaged by inaction. However, as stated in my first post, I do not want to see anything done that will damage the ability of financial markets to allocate capital efficiently; thus, my opposition to PSAs.

[Redshift]

Leo,

I agree that it would be better to make smaller changes sooner, rather than wait. Many Democrats have stated that for people who are serious about this problem, the way to do this is the same way that worked in 1983, by creating a bipartisan group to work up a combination of retirement-age adjustments, tax increases, and benefit cuts.

However, we have a President who goes to great lengths to convince people that there's a funding crisis, and the only firm proposal he has made (diverting payroll taxes into private accounts) would undeniably make that problem worse. Delaying a solution is unfortunate, but trying to work out a deal with someone who is demonstrably negotiating in bad faith is worse. The prospects are potentially better in 2009 if voters are perceptive enough to see through this nonsense and punish those responsible at the polls. (Also, if productivity gains exceed the pessimistic projections of the SS Trustees, the "problem" may well not be bigger in 2009.)

[Jeff L.]

Leo, the trouble is that, unlike you, many conservatives in power, starting with the Bush administration, seek to damage Social Security by action. Do you think George W. Bush has reluctantly reconciled himself to Social Security? It seems pretty clear to me that the aim of Bush and many congressional Republicans is to dismantle Social Security, and they control all three of the institutions involved in making legislation; in those circumstances, it would be naive to act as though they are trying to save it. Furthermore, it is by no means clear that the dimensions of the problem are just going to get worse over time, certainly by way of comparison with the latest ideas floated by Bush. If you are concerned about overall federal borrowing and spending, you should be focusing on our budget problems, which is to say you should be criticizing the Bush administration and the Republican-controlled Congress. And if you are worried about the Social Security dimension of that problem and 2017, you are still worried about a general fund problem, not a Social Security problem, aren't you? Finally, it is by no means clear as a political matter that adjustments become more difficult over time. Just the reverse might be true.

So again, the basic point is that if you believe, as I do, that the Bush administration and many, perhaps the majority, of Republicans in Congress are seeking not to save but to dismantle Social Security, then it seems pretty clear that those who want Social Security to collapse precisely do not want Bush to walk away, unless his position is so weakened that collapse cannot effectively be engineered.

[Tom]

to Leo:

first of all, thanks for piping in with your view. while i think the commentary here tends to be a lot less heated & personal than elsewhere, nonetheless it's clearly not "friendly" turf for a conservative & i respect you for engaging in a discussion.

i think (and suspect that this is where Jeff & yoyo were going, too) that the main obstacle to having a productive dialogue about SS right now is the President's insistence that any deal has to include carve-out PSAs. Put that off the table, focus on a fiscal sustainability target that a majority would accept as meaningful (e.g. meeting the 75-year solvency goal based on the trustees' medium-cost scenario, maybe with the effective dates for some provisions tied to the Trust Fund's actual performance to address the concerns that a lot of people have about whether that scenario is too pessimistic) - and i think the constructive suggestions & deal-making would commence very quickly.

The meta-deal politically speaking would be that the President admits defeat on the issue of PSAs & phasing out Social Security, in exchange for the Dems working with him & the Repubs in congress to pass a bipartisan milestone deal. The GOP goes into the next campaign saying that they forced the Dems to the table, the Dems say they saved SS for future generations, and political life goes on - in the meantime, the fiscal moorings of our most important social program are shored up & our long-term public debt picture improves significantly. Win-win-win, right?

But you're right that it's very unlikely to occur. Because that scenario requires the President to admit defeat, and for whatever reason(s) - whether out of vanity, stubbornness, ideological dogma, or a calculation that they'll be able to muscle what they want through Congress on a narrow, party-line vote as long as they don't give way - the President & his advisors will simply never do it.

I don't know that there's anything to do about this right now, least of all on the part of the Dems. it seems to be such a deeply-embedded part of the Administration's M.O. - we all knew it was part of the package when we re-elected him, and we'll just have to live with it until 2009. so yes, the parties are in a rejectionist mode right now, as a natural & predictable result of a very far-reaching and tragic mistake that the electorate made last November.

and i say that as someone whom almost everyone i know considered to be a pragmatic centrist prior to the current Bush administration. As Mark Schmitt wrote here recently, the President & the GOP leadership have decided to run away from the center.

I'll also challenge your contention that the earlier we act, the less extreme the actions need to be. that's true only if you believe that there really is a Social Security Trust Fund. if there's no such thing as pre-paying SS benefits, and the only true measure of solvency is cash balance in every year, then there's no benefit to enacting changes sooner rather than later. so you and i could agree that modest steps today will spare us from more wrenching changes later, but i don't think that the President would agree with us.

[Abby]

Well Mark, only a couple of years ago I didn't believe in universality. I wanted noblesse oblige bare minimum guaranteed benefit and might have supported a carve out, but then someone pointed out to me that the current SS system is about providing just the bare minimum.

I don't think it's right to think of healthcare as just the problem of the uninsured, because a lot of people who have health insurance aren't getting great care even as it gets more expensive. So I really believe that the solution should be universal, because I think that it might make it an easier sell, and it would do something to cut down on some of the cost shifting.

[Leo]

I concede Redshift's point that Social Security revenue/outlay projections have fluctuated much over the years, and will undoubtedly do so again due to many factors that cannot be foreseen (changes in national income, increases in longevity, contributions to the system by documented/undocumented immigrants, etc.).

However, I do not concede the political point. President Hillary will be every bit the polarizing figure to the right that Bush is to the left. The rejectionism that is evidence today will re-appear in mirror-image in 2009 with equal ferocity. Thus, I am pessimistic that any common ground can be found.

[serial catowner]

The idea that rejectionism on the right will be as paralyzing as rejectionism on the left has been rests on the idea that right rejectionism will be as well-founded. But there's no evidence for that.

Left rejectionism has worked because Bush is full of baloney. It's not even 'left' rejectionism, it's centrist rejectionism. When Bush starts a speech by telling us government bonds are worthless, and ends by assuring us our 'personal account' will be safe if we invest it in government bonds, you don't need to be a flaming radical to see the problem.

Yes, the right will scream if the payroll cap is lifted by $25k or the payroll tax rate is increased by 1-2%. Most of us, however, will see these kinds of changes as fairly moderate. In combination with the likelihood that the economy will outperform the morbid projections of the privatizers, these modest changes can be made later when the Halliburton-Enron gang is out of office.

After all, you don't open the vault for the annual inventory when your bank is full of robbers.

[Ellen1910]

Mark, is your argument that raising the cap to capture 90% of wages would undermine support for the program anything other than a personal gut feeling?

I know you realize that for a family earning $150,000 [spouse #1 @ $90,000 and spouse #2 @ $60,000] there is no effect. And too, the cap could be raised by acceleration over a ten year period.

How many districts would be lost to the Democratic party, because these top ten percenter Democrats would switch parties?

How about none?

[MDtoMN]

Leo, I actually see the very danger you fear as the primary purpose for this personal account move. The modern Republican Party embraces market distortion whenever possible to aid their core constituencies. Very few of their policies make any sense from "common good" or "libertarian" or other ideological views, but they make a great deal of sense in helping their core constituencies.

[Nell Lancaster]

And Leo, you can put that can of 'President Hillary' b.s. right back on the dusty shelf where you got it.

[Allen K.]

that doesn't mean that we are pushing for a return to 80% tax rates on the wealthy.

Speak for yourself!

Bring back the 1950s! (No, no, not the HUAC part!)

[Blue Cross of California]

Great blog I hope we can work to build a better health care system. Health insurance is a major aspect to many.