Taking on Social Security

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Free-market crusader Stephen Moore learned over the years that the quickest way to bring an abrupt end to a conversation was to mention two words: Social Security. He remembers a White House meeting in the mid-1980s at which he raised the idea of overhauling the program as a way to cut the deficit—and a top Reagan Administration official pretended to have suddenly gone deaf. Years later, Moore brought it up as Newt Gingrich and his wrecking crew were drafting the Contract with America, which would be their manifesto for taking over the House. Again, no sale. "It was one thing every Republican said was off the table—even these revolutionary Republicans," Moore recalls.

So he was more than a little shocked when he went to Austin in 1999 to meet the Texas Governor, who was putting together a presidential campaign, and George Bush himself brought up Social Security—not just tinkering with the program but making the most radical change of all. "I just want you to know," Bush told Moore, "that I'm really committed to these private investment accounts."

It turns out he meant it. As Bush takes the oath of office and begins his second term this week, he is preparing to bet his presidential legacy on the very issue that Republicans have been doing their best to avoid for decades. Transforming Social Security is Bush's biggest domestic political gamble—audacious even for a President who prides himself on audaciousness—and one that could reshape far more than a single government program. Those who believe in it most deeply say it could redefine politics itself, putting Republican principles in a position to dominate for the next half-century, as Democrats were able to do after F.D.R. created the program that was the signature of his New Deal. Just as Bush believes democracy has the power to transform places like Iraq, so too is he convinced that privatization of Social Security could recharge America's future. The central idea is to take a portion of the tax every worker pays into the Social Security system and put it into a savings account that each individual can decide how to invest. By turning every American into an investor, and a government safety net into a system that rewards judicious risk and individual initiative, Republicans believe they can change how Americans see every question from free trade to capital gains-tax cuts. "If we succeed in reforming Social Security, it will rank as one of the most significant conservative governing achievements ever," Bush's strategic-initiatives director Peter Wehner wrote in a private memo to Republican allies two weeks ago. "The scope and scale of this endeavor are hard to overestimate."

The same can be said for its degree of difficulty. TIME's latest poll gives some indication of what Bush faces: 49% of respondents said they disapprove of the President's handling of Social Security, while only 40% said they approve. And that's before Bush has even put forward the details of his plan. Nonetheless, the President has begun his assault—personally and through a cadre of emissaries from Vice President Dick Cheney to Treasury Secretary John Snow—labeling Social Security a "crisis" that must be fixed. "First step," Bush told TIME last month, "is to make sure everybody understands we have a problem." The President last week surrounded himself with citizens ranging from children to an 80-year-old and warned that the Social Security system will be "flat bust, bankrupt" by the time workers in their 20s retire. As early as 2018, Bush said, "you're either going to have to raise the taxes of people or reduce the benefits." At another appearance intended to promote federal standards for testing high school students, Bush went off script to warn a group of teenagers, "The system will be bankrupt by the year 2040."

That sounds pretty scary—except that it's not true. What will actually happen in 2018, according to the Social Security trustees who oversee the program, is that the money paid out in benefits will begin to exceed the amount collected in taxes. And since Social Security will run a surplus until then (and has been running one for some time), it has billions available that it can tap to fill the gap. Even under conservative estimates, the system as it stands will have enough money to pay all its promised benefits until 2042 and most of its obligations for decades after.

What's more, even if you take the President at his word—that a crisis and bankruptcy are fast approaching—the introduction of private accounts does nothing to slow that process. On the contrary, it makes things worse, by diverting payroll taxes from current retiree benefits and bringing the end of surpluses that much closer. Given all that, what is the President after?

As Moore learned when he visited Austin, Bush's fascination with Social Security began before he got to Washington. As Governor, his advisers say, he was struck by the experiences of local governments in places like Galveston County that had allowed their employees to opt out of government retirement plans and invest the proceeds in private funds—yielding legends of courthouse janitors retiring with $750,000 nest eggs. As Bush planned his first presidential campaign, he brought in experts to brief him on how privatization had worked in places like Chile, and even Sweden—surely one of the rare instances of a Republican taking the lead from a country known for a near socialist welfare system.

Democrats have darker views of Bush's motives, saying it has been a long-standing Republican goal to dismantle the vestiges of the New Deal and the basic contract it struck between the government and its citizens. They also contend it is perfectly in keeping with everything they know about Bush that he would create the mirage of pending catastrophe to achieve that goal. "We have an Administration that falsely hypes almost every issue as a crisis," the liberal lion Edward M. Kennedy said in a speech last Wednesday, which happened to be the same day the Washington Post was reporting on its front page that the CIA had quietly given up its hunt for weapons of mass destruction in Iraq. "They did it on Iraq, and they are doing it now on Social Security." (As for voters, they don't seem to know what to make of the real situation: in the TIME poll, 45% agreed with Bush that the system faces a "crisis"; 44% said the claim was just a "scare tactic.") And yet Bush is right about one big thing: Social Security does face a fiscal challenge—one that will be less painful to handle the sooner we tackle it. Though policymakers talk of Social Security as a trust fund (or, in the imagery that Al Gore and Saturday Night Live made famous, "a lock box"), it was enacted as an insurance program in which current workers pay for older generations. Today more than three-quarters of payroll taxes go to pay benefits. With baby boomers getting ready to retire in droves over the next few decades and life expectancies growing, the ratio of workers paying taxes to retirees collecting checks will drop dramatically. It was 8.6 workers for every retiree in 1955 and will drop to 2 workers for every retiree in 2040.

That projected shortfall is not a new situation, or even the worst that Social Security has faced. The system came within days of insolvency in the early 1980s. And there's always the option of fixing it the way policymakers did then, by raising taxes or tinkering with benefits by, for example, raising the retirement age.

It's not a permanent solution, but it could add many decades to the life of the program.

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