Social Security and the 108th

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Seventy-six million baby boomers are rapidly approaching retirement, even as the long-term insolvency of the Social Security program comes closer with each year that politicians fail to reform the nation's retirement system. It was in that context that President Bush laid down a marker during his State of the Union address Tuesday evening. "Younger workers should have the opportunity to build a nest egg by saving part of their Social Security taxes in a personal retirement account," the president declared. "We should make the Social Security system a source of ownership for the American people."

On the day after the presidential campaign officially began with Democrats finally competing in Iowa for real delegates in pursuit of their party's nomination, we were quite pleased that the president put in play the one issue that will have a major effect upon both the young and the old for generations to come.

To be sure, nobody expects Congress this year to pass Social Security reform that emphasizes private investment accounts. After all, Senate Democrats could easily thwart such an effort. Nevertheless, it is hardly notional when a president issues such a major, multitrillion-dollar, inter- and multigenerational challenge in an election-year State of the Union speech. The opposition will undoubtedly pounce on the proposal. However, now that Mr. Bush has signaled his intention to campaign on such an issue, he is well on his way toward creating a mandate for 2005.

As it happens, he will be following the well-worn path of Republican senators from the Class of 2002, including John Sununu, Lindsey Graham and Elizabeth Dole, all of whom emphasized Social Security reform in their campaigns. In fact, Mr. Bush himself was comfortable endorsing private retirement accounts during the 2000 campaign; and, absent September 11, there was good reason to believe that he would have proposed Social Security reform legislation in 2002. If Republican senatorial candidates in the five open races in the South replicate the 2002 southern successes of Mr. Graham and Mrs. Dole, the Democrats' blocking action in the Senate would be seriously compromised.

Democrats today prefer to emphasize the estimated $1 trillion it will cost in transition expenses to move toward a partially privatized Social Security system. But as Michael Tanner, director of the Cato Institute's Project on Social Security Privatization, rightly asserted recently, the transition costs are dwarfed by Social Security's unfunded liabilities of nearly $12 trillion (discounted present value).

Even President Clinton, in his final budget, acknowledged that "payroll taxes are projected to cover only 71 percent of currently promised benefits" after the so-called assets in Social Security's so-called trust fund are exhausted. Moreover, Mr. Clinton had previously outlined the limited options for resolving the impending Social Security imbalances: Raise taxes; reduce benefits; increase the system's rate of return by investing Social Security funds in real capital assets; or pursue a combination of these three options.

Some Democrats, steadfastly opposed to allowing workers to invest a portion of their Social Security taxes in private capital assets, advocate what amounts to massive government investment in those same assets. Beyond the real danger of radically politicizing the free-market system, government investment would conveniently prevent workers from obtaining real ownership of their retirement funds. It is a non-starter. Thus, with most Democrats adamantly opposed to worker-owned-and -managed private retirement accounts, the opposition is left with the options of raising taxes or reducing benefits. Mr. Bush clearly understands that the colossal issue of Social Security presents the opportunity for a grand debate that is not only worth engaging, but also quite winnable.