EDITORIAL: The Social Security song and dance

The Senate Budget Committee says it is prepared to tackle the third rail of American politics, Social Security, encouraged both by President Obama’s remarks that “what we have done is kicked this can down the road; we are now at the end of the road and are not in a position to kick it any further,” and by his commitment to not allow it to go past his presidency. Commendable. Also commendable was the Senate holding its first hearing on the nation’s long-term fiscal outlook the day after Mr. Obama’s inauguration, focused on fixing Social Security and Medicare. That drew praise from the budget panel’s ranking Republican, Sen. Judd Gregg of New Hampshire.

Before anyone gets carried away in rapture (or seniors mobilize a march on the Capitol), this kind of out-of-the-gate-action talk has been said before by many, including Mr. Gregg and recent presidents. Eight years ago a Republican-led Congress responded to the call of newly inaugurated Republican President George W. Bush to fix Social Security. Untold hours of expert testimony went on in numerous hearings during the 107th, 108th, 109th and 110th sessions about alleviating Social Security Trust Fund deficits by reducing benefits for high-wage earners and creating personal retirement investment accounts, using part of the current 12.4 percent payroll tax as an annual contribution.

This plan would have worked had Democrats not been adamant in support of payroll-tax increases and in opposition to private accounts.

Mr. Obama has attempted to show that if private accounts had been created within the system, those private account holders would be without retirement income given the current state of economy. But Andrew Biggs, a scholar with the American Enterprise Institute, points out that a person who began working in 1965 and retired in September 2008, even in this difficult economy, would receive $15,700 per year under the traditional Social Security. But if that worker were permitted to invest 4 percentage points of the 12.4 percent payroll tax in a personal account, he or she would have increased their total Social Security benefits by 15 percent.

For workers who chose personal accounts, this traditional benefit would be reduced by around $7,800. But if the worker had a personal account, the balance of $161,500 would pay an annual annuity benefit of around $10,300, according to Mr. Biggs - meaning that, netted out, the personal account would increase annual benefits by approximately $2,500. “While today’s retiree would have faced the subprime crisis and the tech bubble earlier in the decade, he also would have benefited from the bull markets of the 1980s and 1990s. The average return on his account - 4.9 percent above inflation - would more than compensate for a reduced traditional benefit,” according to Mr. Biggs.

Prior to the Bush plan, President Bill Clinton had a plan to transfer large sums of the projected $1 trillion budget surplus into the Social Security Trust fund and invest the funds in equities. That plan was rejected by Republicans and it came as the Monica Lewinsky scandal was consuming his presidency.

Of particular note is that while the “slow moving” Senate is already moving toward building a consensus on policy, neither the House Budget Committee nor the Ways and Means Committee or the relevant subcommittees have held a hearing or even have one scheduled. While Mr. Obama’s zeal is truly admirable, the first thing he should learn from his predecessors is that absolute-demagogic statements - like his condemnation of the Bush plan - will only lead to political disappointment and disaster.