If it is mid-October in a presidential election year, then it must be time for the Democratic candidate to demagogue Social Security, trying to frighten senior citizens by predicting imminent destitution if a Republican is elected. Right on cue, the Kerry-Edwards campaign unfurled a distortion-laden television ad over the weekend asserting that President Bush “has a plan that cuts Social Security benefits by 30 percent to 45 percent. The real Bush agenda? Cutting Social Security.”
In 2000, Al Gore used the same tactics against Mr. Bush, who boldly campaigned on a platform promising to reform Social Security. While Mr. Gore won the overall black vote by a 90 percent to 8 percent margin, Mr. Bush defeated Mr. Gore 52 percent to 46 percent among the 19 percent of the electorate comprising white voters 60 and older, a margin that catapulted the Republican to the White House. Mr. Bush not only touched the third rail of politics in 2000 — he embraced it. And while his plans for reforming Social Security were temporarily placed on the back burner as he began prosecuting the war on terror, he has resurrected the issue in 2004, seeking a mandate to rapidly move forward early in his next term.
Regardless of who wins the presidency next month, the first of 76 million baby boomers will have begun collecting Social Security benefits before the four-year term is completed. Neither candidate will be able to alter the fact that the present value of Social Security’s unfunded liabilities currently exceeds $10 trillion, according to the 2004 Social Security Trustees Report. Neither candidate will be able to reverse an inexorable demographic trend which has reduced the ratio of taxpaying workers to benefit-receiving retirees from 16 (50 years ago) to 3.3 today to a projection of fewer than three workers for each beneficiary within 10 years.
Despite spending 20 years in the Senate and despite organizing nearly 40 domestic policy councils and relying upon scores of policy consultants for his presidential campaign, Mr. Kerry has repeatedly demonstrated throughout his presidential bid that he doesn’t have a clue about Social Security’s impending fiscal crisis. On “Meet the Press” in August 2003, for example, Mr. Kerry asserted that Social Security “starts running out of money in 2027.” In fact, Social Security’s cash flow would become negative in 2018, and the IOUs in its trust fund would be exhausted by 2042, according to the 2003 trustees report. Where did the self-styled policy genius get 2027? Preceding that comment, he acknowledged, “I have no idea”; and on that score, he was right. By April 2004, when Mr. Kerry had wrapped up the Democratic nomination, he returned to “Meet the Press,” implausibly declaring that Social Security’s long-term problem could be solved if “[w]e have more Americans who are working. We have the ability to grow out of it.” Growth will not rescue an unreformed Social Security program.
During the last debate, Mr. Kerry demonstrated that he has no plan. Now he is intentionally misrepresenting President Bush’s reform guidelines. The president could not be more clear: “I will keep Social Security’s promise to today’s seniors, while strengthening it for future generations, without changing benefits for retirees or near retirees or raising payroll taxes,” Mr. Bush told the Associated Press last month. “We will instead add voluntary personal savings accounts to allow today’s workers to build a nest egg that can be passed along to their families.”
Mr. Bush acknowledges that transition costs will likely total between $1 trillion and $2 trillion as younger workers divert a portion (probably 2 percentage points of the cumulative employer-employee 12.4 percentage-point Social Security tax) to personal savings accounts. Through the inexorable power of compound interest, which Albert Einstein reportedly called “the eighth wonder of the world” and “the most powerful force of the universe,” most actuaries agree that such a policy will generate a much larger retirement nest egg over the long run than the meager returns generated by Social Security — before Social Security implodes. The transition costs, while indisputably large in an absolute sense, pale relative to costs that will be incurred if Social Security is permitted to continue to be the Ponzi scheme that it is. In fact, that is precisely what Mr. Kerry advocates.
The campaign of fear, which Al Gore aimed at seniors, failed utterly among elderly white voters. Recent talk-radio experience reveals that younger black voters enthusiastically embrace personal savings accounts once they understand that these accounts represent financial capital that can be bequeathed to their heirs rather than to the Social Security trust fund. This truth will only become more obvious over time. Indeed, this election may well be the last time Democrats may even try to demagogue Social Security.