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A Weekly Look at People and Issues In the Nation's Capital Debating Privatized Social
Security Moynihan plan requires making system solvent first
By James Toedtman. CHIEF ECONOMIC CORRESPONDENT
Washington-President George W. Bush and Richard Parsons, the New York business leader co-chairing the latest Social Security reform commission, may be surprised when the commission finishes its work, especially if former Sen.
Daniel Patrick Moynihan, the other co-chair, has his way.
Eager to fulfill his campaign promise to establish private investment accounts as part of Social Security, the president filled his new commission with politicians, academics and experts who have endorsed the concept. To enforce the point, the private account feature was prominent among the objectives he listed for the commission as he introduced the panel during the Rose Garden ceremony on May 3. Bush also said any overhaul should not reduce benefits for those nearing retirement or for 45 million retired and disabled Americans currently receiving monthly checks.
Yet eight of the 12 commission members who have studied the current system have recommended doing just that. Just two days before he was announced as the commission's co-chairman, Moynihan went further, stressing not just the changes needed to make the system solvent but also the sequence of those changes. At a Capitol Hill speech, Moynihan repeated the core of a restructuring proposal he has advocated for three years. It involves adjusting the formula for determining future benefits-which would effectively cut benefits 20 percent, gradually raising the eligibility age to 70, extending the payroll tax to 5 million state and local workers and raising the cap on payroll taxes from the current $80,000 to $90,000. Once that is done, the payroll tax would be cut from 12.4 percent to 10.4 percent to give taxpayers the option of diverting the savings into individual investment.
Moynihan insists on the sequence. "Don't talk about privatized accounts until you first make the system solvent," he said. "This is crucial. We must absolutely guarantee that the present benefit structure will continue in place before we start devising a thrift savings component. To do otherwise is to invite the most shrill protests of raiding a sacred trust for the benefit of Wall Street." Two other appointees, Fidel Vargas, a California Democrat, and Carolyn Weaver were both members of former President Bill Clinton's Advisory Council on Social Security, which could not reach consensus and published three separate reports in 1996. Vargas endorsed Weaver's proposal to carve out 40 percent of the current payroll tax for privately maintained accounts. To pay ongoing costs of the system, Weaver proposed cutting benefits by more than half, to an average of $410 a month, cutting disability benefits by 20 percent, increasing payroll taxes and borrowing up to $2 trillion from the federal Treasury.
Another study, endorsed by two other commission members-Estelle James, a World Bank economist, and Robert Pozen, president of Fidelity Investments-proposed raising the retirement age and cutting benefits for spouses and for middle-income retirees.
These solutions highlight the central problem facing Bush's privatization proposal-continuing to pay a growing number of recipients at the same time the pool of available funds would have to be reduced to finance new private accounts. That's atop of the overall problem facing the system as some 40 million Baby Boomers reach retirement age in the next decade. With no changes in benefits or eligibility, the system will no longer take in more funds than it spends in 2018, and by 2038, the system will no longer be able to pay full benefits.
The commission, which expects to hold its first meeting early next month, is evenly balanced politically-eight Democrats and eight Republicans. While White House officials insist they are open to other suggestions, the commission members have all agreed with the partially privatized system Bush has advocated since he launched his presidential campaign.
Still Moynihan, a lifelong Democrat, seemed an unlikely recruit for helping a new Republican president realize a campaign promise. "When the president calls, he answers, 'yes,'" Moynihan's former chief of staff, Tony Bullock, explained. Indeed, Moynihan has known a few presidents: He served in the administrations of four, from John F. Kennedy to Gerald Ford, and worked with the past four-from Jimmy Carter to Bill Clinton-as New York's senator.
Moynihan says he also believes the current political balance might facilitate a bipartisan solution.
As for Parsons, the former Dime Savings Bank president and now chief operating officer of AOL-Time Warner, his surprise is that there actually may be a Social Security check for him when he reaches retirement age in 14 years.
"Until this point in time, I've never believed that I was going to get anything out of Social Security," he said.
IN THE SENATE The Senate on Wednesday gave final approval, 62-38, to President George W.
Bush's 11-year, $1.35 trillion tax relief package, the largest tax reducation in two decades.
Charles Schumer (D) No Hillary Rodham Clinton (D) No IN THE HOUSE Before passing President George W. Bush's No. 1 domestic priority to overhaul education, the House on Wednesday rejected, 273-155, a drive by Republican conservatives to include a plan for the government to provide vouchers for students to attend private schools.
Steve Israel (D) No Felix Grucci (R) No Peter King (R) Yes Carolyn McCarthy(D) No Gary Ackerman (D) No Gregory Meeks (D) No Joseph Crowley (D) No Jerrold Nadler (D) No Anthony Weiner (D) No Nydia Velazquez (D) No Carolyn Maloney (D) No Charles Rangel (D) No Nita Lowey (D) No
Shhhhhh though, - don't want to make the others jealous! - Jesse.
- Jesse.