When the Bush administration embarked on its campaign to change Social Security, it made two big assumptions about public attitudes toward the program. Each was logical, defensible and wrong.
The first was that middle-aged workers and retirees could be bought off by exemption. If you were born before 1950, President Bush would say on the stump, you will not be affected by any of my changes and you will get your full benefits. The message was that the 55-and-ups were home free and had no reason to object to what happened to anyone else.
The second assumption was that younger workers would be fine with having personal private investment accounts substituted for full retirement benefits. The thinking here was that young people did not really believe in Social Security, anyway. They knew they paid taxes for something called FICA but they often told pollsters they did not expect the system to be around to pay off for them.
But once the debate over private accounts got rolling, these two groups did not fall in line according to plan. Instead, the older workers proved more resistant to the partial-privatization idea than any other age group. Polls show younger workers are more receptive than their elders, but not by as much as the White House might have hoped.
It's not entirely clear why these targeted groups have been so hard to win over. But it is not hard to find clues to their thinking in the polling data and the endless media interviews from the past several months.
Older workers are, of course, Social Security's most natural supporters. They are in or nearing their payback years. It's possible that this alone makes them uneasy with any proposed changes. If Washington can suddenly step in with a 1950 cutoff date, what's to stop Washington from coming back later and setting the date somewhere else? If benefits are on the chopping block for younger people now, what's to keep the same from happening for older people?
It is also possible that many older workers are thinking of someone other than themselves when they tell pollsters they like Social Security the way it is. Maybe they think what's been good for them would be good for the coming generations too.
But what about those younger people? If they have no more faith in Social Security than in the tooth fairy, as has often been said, they should be relieved to get a chance to take their own risks with their own money. Many of them are; but at least as many young workers remain at least as skeptical about the financial markets.
Given that fewer private companies are providing defined benefit retirement plans, preferring to contribute to their employee 401(k) plans, an ever-growing proportion of well-paid Americans is already invested in today's private markets. These workers hope to reap far more from these investments than they receive from Social Security. But even for this fortunate class, the Social Security benefit has value as an income underpinning and a hedge.
So now, with its campaign foundering in public disapproval, the White House needs to revisit its assumptions, revise its strategy and see what may still be salvaged.
The White House started with two broad goals. It wanted to address the coming shortfall in Social Security funding, which begins sometime after 2040. But at least equally important was the goal of shifting from an all-public, pay-as-you-go system to a hybrid in which the FICA tax on employees could be partially invested privately for their personal benefit (and at their own personal risk).
The bitter medicine of benefit reductions would be sweetened by the prospect of bigger profits in private investment. The oldsters got the security of the original benefit, the young got a chance to do better. But neither seemed quite satisfied with its end of the bargain. And the folks in between were as disgruntled as the White House always expected them to be.
At this point, the White House needs a radical course correction. So why not turn the original assumptions on their head?
Even President Bush has signed on for the idea of "means testing," which would ask those who need Social Security less to be happy with less Social Security. So why not take this a step further and say you're going to ask everyone to make at least a nominal contribution to fixing the long-term solvency problem?
This could be accomplished by accelerating the rate by which the system now raises the cap on earnings subject to Social Security tax. The cap this year is $90,000. It could easily rise faster than it does now, substantially easing the fund's eventual solvency problem.
The same sort of reasoning can be applied to benefits, and it would not even be necessary to shift the benefit calculation from wages (where it is now) to prices (as the president has proposed for better paid workers). All you need is a simple sliding scale that reduces the benefits according to such variables as age and overall taxable income.
Instead of trying to convince older workers and retirees they will be held harmless, why not be up front? Why not ask them to contribute something to preserve the program they support so strongly for themselves so it can be there for their children and grandchildren?
Instead of trying to persuade the young they will all be rich thanks to the ever-bountiful markets, why not tell them directly that they will be receiving a little less in Social Security than their forebears for the sake of keeping the system solvent going forward?
Private accounts could still be added alongside the system, as was envisioned in the 1990s, using additional investment funds that workers voluntarily devote to them. Call it a government-sponsored 401(k), if you like, with the investments subject to each worker's control. This would provide additional savings in the economy and give privatization advocates a chance to demonstrate how much better their approach could be.
This candor-based proposal shows no sense of political savvy -- not even an attempt at it. That is precisely what would set it apart and give it a chance. Why not at least try to sell a real solvency plan on the basis of pain that is truly shared? No one escapes some loss, but no one bears the brunt. And the nasty surprise comes at the start, not later on.
Being honest isn't always enough to close a sale, but it's usually enough to get people's attention. And in Washington, it can be easier to move people once you've knocked them off balance.
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