Bush, Gore and Social Security

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Al Gore and George W. Bush are having a full-throated debate on one of America's thorniest issues: Social Security. And by going where only bipartisan panels have dared to go before, they're threatening to make this presidential race interesting — in May, no less. Here's what these two propose to do about FDR's social safety net, which meanwhile continues to slouch toward insolvency (expected to occur in 25 years or so), and what you need to know before your grandmother calls.

What's Bush's big idea?

Bush came out with guns blazing this week for partially privatizing the program, setting aside an unspecified portion of the payroll tax paid by employers into the fund, currently 12.4 percent of salaries, for individual retirement accounts. Workers would then have control over their own accounts, with the ability to invest in stocks, bonds, mutual funds, whatever — and make their golden years as golden as they possibly could. Bush argues that investors couldn't help but beat the 2 percent returns that the fund's current surpluses draw.

How does Social Security get saved?

If workers, on average, make more than that 2 percent, then the government can scale back somewhat on its guaranteed benefits on the premise that workers are more than making up for it on their own. Bush's plan is quintessentially Republican — save the government money by farming its work out to the more efficient private sector. He's hoping to sell people on the chance to handle their own retirement better and more profitably than the bureaucrats in Washington.

What's the problem?

There are two. The first is that some investors may not be able to beat 2 percent, and if the stock market goes into a downturn, or even a period of stagnation, "some" could become many. There are economists who argue that for younger workers, buying into the market now could be a classic case of bad timing, and then the government would only be looking at a politically inevitable bailout of the fund a generation or two from now, costing even more money. The second is the huge administrative costs inherent in making the transition from one huge fund to millions of little ones. Bush won't price it, saying it's a negotiable subject for congressional bean counters, but Gore happily puts the tab at $900 billion.

So what's Gore's big idea?

Keep the fund just like it is.

And how does Social Security get saved?

Saving and patience. Gore's plan is to stay the course Clinton set out but never quite got to embark upon. He wants to use the surplus the fund is currently running to pay down the national debt over the next decade or so, putting the economy on sounder footing and freeing up more money (which now goes to debt servicing) to keep the fund going a while longer. It's a stall tactic, but one with tangible overall benefits in the meantime.

And what's the problem with that?

Expecting that kind of fiscal discipline from future presidents and Congresses is not a great bet. The budget surplus the government supposedly has now is basically a fantasy based on a three-year-old budget and optimistic economic projections. There's little good reason to believe that Gore's successors would be able to keep up such a schedule, or even that Gore himself would be able to get such a program out of the hangar in the first place.

What do the big brains say?

As ever, there are plenty of big brains on both sides, generally arrayed in accordance with their political leanings. However, Gore's plan of debt reduction is a magnet for serious economists — it's one thing that pretty much everybody agrees is a good thing. And for every futurist who screams "Dow 50,000," there are two who wonder if the markets are something to be betting America's retirement on. Though very Democratic, Gore's status quo variation is also very conservative (with a small "c"). Old people and academics tend to support that sort of thing, and if Gore is a deft enough translator he'll be able to trumpet plenty of big-name endorsements.

Why not have the government invest some of the fund's money in the markets?

This was the part that scared off Alan Greenspan last year. Purists feel that government investment of such a huge pool of money in the markets, even in a broad-based mutual fund run by a blind trust of sage bankers, amounts to state ownership of private businesses. Of course, investment decisions made by market professionals instead of private citizens with day jobs are more likely to pay off reliably in the long term. But the administrative tangles and potential conflicts of interest — as companies vie for the attention of the fund's directors — have nudged this proposal out of the spotlight.

What's next?

The selling. Bush is taking the big political risk here, and he's already taking hits from Gore both on the things he's proposed and the details he's left out. He's proposing a fundamental change in a cherished system — the safety net won't be quite as safe as it used to be — and he's also in the uncomfortable position of advocating a form of government reform and privatization that will cost a bundle to implement. But Bush is trying to live up to his self-applied "reformer with results" label and accommodate the ghost of John McCain, who's with Bush on this one. W. is also counting on the emergence of an "investor class" in November, a new generation of voters who have confidence in their own investing talents and weren't counting on Social Security being around much longer anyway. The question is, will they come out to vote on this issue?

Older voters have proven they'll do just that, and Gore will be focusing on them as he tries to discredit Bush's plan. The vice president's first stop on Wednesday was a speech to 10,000 senior citizens at an American Association of Retired Persons convention. There and over the next weeks, expect Gore to use the word "risky" very liberally and hint broadly that Bush's plan isn't ready for prime time and neither is Bush. Gore may need to emerge from the shadow of Bill Clinton (who offered Monday that neither plan was as good as his from a few years ago: setting up the individual accounts with money from the current surplus instead of payroll taxes), but he's still running as an incumbent. The status quo, and the current demographics of the voting public, will be Gore's best asset.

Something to remember:

Most experts agree that to truly save Social Security, something politically uncomfortable will have to be done, whether it's raising payroll taxes, cutting benefits or raising the age of eligibility. Bush has already promised no new payroll taxes; Gore's hoping to avoid all three. Despite the sudden emergence of a serious election-year debate on a very big issue, there's still a lot of parts of the puzzle no one wants to talk about.