The Business Of Reform

Feb. 2, 2005

A NAM-founded coalition promises to be in the forefront of overhauling Social Security.

As the Bush administration presses its plan for Social Security reform, and Congress considers a hopper of options, the U.S. business community will be lobbying the issue from, among other places, the Pennsylvania Avenue offices of the National Association of Manufacturers (NAM), just two blocks from the White House.

NAM's headquarters in Washington, D.C., houses the Alliance for Worker Retirement Security, a group mostly of associations, including the NAM, the U.S. Chamber of Commerce, the National Federation of Independent Business, and the Business Roundtable, and a few companies, such as Pfizer Corp. NAM founded the group, which now has about 40 members, in 1998. "The NAM has probably put in as much time and effort as anybody else on the issue, and I think we're going to be playing a leading role throughout this year," says Derrick A. Max, the alliance's executive director.

The group has two major interests is seeing Social Security reform. First, the Federal Insurance Contributions Act tax that funds Social Security is "a head-tax on employment, so if you're in a labor-intensive industry like a lot of manufacturing is, you feel it. Every time you want to hire a new person, the first dollar you pay them, you pay 12.4 cents to the government," states Max. "When you tell a manufacturer who operates on very small profit margins that that tax they're paying on each employee could go from 12.4 [cents] to 19.6 [cents] if we don't fix [Social Security], their eyes get wide, and they think 'I bet it doesn't [go] up in China,'" he contends. Second, the creation of individual personal investment accounts, which the Bush administration is pushing, and the alliance has backed since its founding, is in keeping with the movement among companies away from defined benefit retirement plans and toward defined contribution plans, Max says. He plays down the prospect of private investment in equities driving down the cost of capital to manufacturers.

The Bush administration is pushing Social Security reform now out of a belief that as the baby-boom generation begins to retire in 2007, the surplus in the Social Security System's accounts will begin to turn to deficit. That, in turn, would make the administration's goal of halving the federal budget deficit in five years all the more difficult.

At this point, no one, including President Bush, the members of the U.S. Senate and House of Representatives and those in the Alliance for Worker Retirement Security knows what privatization plan, if any, will emerge from Congress.

A plan proposed in 2001 by the President's Commission to Strengthen Social Security envisions workers being allowed to channel up to 4 percentage points, with a maximum of $1,000, of the payroll tax they pay annually into an individual private account that offered equity, corporate bond and Treasury bonds. UBS Securities LLC suggests transition costs of this plan "would likely reach" $1.7 trillion during its first 10 years and not begin to lower the federal budget deficit for nearly 50 years.

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.