Congress' Hottest Issue

Dec. 21, 2004
Clinton's speech on Social Security opens the debate, with personal accounts the focus.

For years, Congress, the Administration, business, labor, Republicans, Democrats, think tanks, the public -- any group you name -- all have agreed that Social Security reform is an urgent national priority. But what to do? Disputes over that question, and a reluctance by either Congress or the White House to put a proposal on the table first, have stalled any action. Now, however, the political planets may be aligned for overdue decision-making on the issue. The budget is in surplus, the economy is booming, President Clinton needs a legacy, and Republicans want to show they have a broader agenda than simply impeaching the President. Finally, there seems to be a new sense of urgency -- a recognition by even the most ardent procrastinators that in only 13 years the Social Security system will begin to pay out more in benefits than it generates in payroll revenues. So it's not surprising that as the 106th Congress heads into its second month, Social Security is emerging as its No. 1 issue. President Clinton practically ensured that by making it the centerpiece of his State of the Union address last month, firing the opening volley in what could be as intensive a Congressional battle as health-care reform was in 1993. Although for months Clinton gained political mileage with his vague "Save Social Security First" slogan, it wasn't until his Jan. 19 speech that he offered a specific proposal. His plan would earmark two-thirds of the projected budget surplus in the next 15 years -- about $2.7 trillion -- to the Social Security trust fund, and some $700 billion of that would be invested in stocks and bonds. But Clinton didn't go as far toward a market-oriented proposal as was expected. He rejected calls from Republicans, some Democrats, and most of the business community for individually managed Personal Retirement Accounts (PRAs) that would allow individuals to invest part of their payroll taxes in stocks and bonds. He also didn't propose using any of the surplus for a major tax cut, a "must" for most Republicans. As a result of both what the plan proposed and what it left out, the plan has drawn heavy criticism from the GOP. This opposition, along with partisan bitterness holding over from Clinton's impeachment trial, makes agreement on final Social Security legislation this year unlikely. Business groups aren't happy with the plan, either. Says Jerry Jasinowski, president of the National Assn. of Manufacturers (NAM): "The President's proposal to invest portions of the budget surplus in the Social Security trust fund and the stock market . . . is another example of a politically appealing approach that is seriously flawed. Trying to give each side in the debate a little of what [it wants] won't do much to save the system, and would make what we now call 'big government' seem like small potatoes by turning Uncle Sam into the biggest player on Wall Street." Echoes Dan Danner, vice president for federal public policy at the National Federation of Independent Business (NFIB): "The President's initiatives move us in the wrong direction. Instead of focusing on the needs of the future, he has focused on the political expediencies of the present. . . . The suggestion that the federal government should own huge blocks of American industry would represent the largest expansion of government since his national health-care proposal of 1993." In contrast, AFL-CIO President John J. Sweeney hails the plan. "We are especially pleased," he says, "with the President's strong opposition to replace our nation's most important family protection program with private accounts." The opposing reactions of business and labor clearly indicate that PRAs will be the focus of the Social Security policy debate. The battle already has begun. The AFL-CIO last month launched a nationwide grassroots campaign against such accounts, and the AARP (formerly the American Assn. of Retired Persons) also is mobilizing opposition. Meanwhile, major business groups have formed a coalition -- the Washington-based Alliance for Worker Retirement Security -- to coordinate lobbying on behalf of the concept. Among its members: the NAM, NFIB, the U.S. Chamber of Commerce, and the Business Roundtable. Other alternatives besides PRAs also will compete in the Social Security debate. Among the options: boosting revenues by expanding coverage to state and local government employees, raising the retirement age, or increasing the payroll tax. But Congress has resorted to a payroll-tax fix 24 times since the program was established in 1937. Employers, especially small-business owners, are adamant against another. Expect a business outcry if legislators attempt to try it again.

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