[Paleopsych] Kerrey on Social Security

[Lynn D. Johnson, Ph.D.]

No, not John Kerry, the smart Kerrey.

http://www.opinionjournal.com/editorial/feature.html?id=110006234
Pride and Prejudice
"Hell no, we won't go" is the wrong liberal approach on Social Security 
reform.

BY BOB KERREY
Tuesday, February 1, 2005 12:01 a.m. EST

The late Pat Moynihan used to joke when I asked him why liberals were so 
reluctant to consider changing Social Security so that it guaranteed 
wealth as well as income: "It's because they worry that wealth will turn 
Democrats into Republicans." Leaving aside that possible correlation, it 
will be a shame if liberal voices, values and ideas are not brought into 
the debate initiated by President Bush's Social Security reform 
proposal. To make certain the reforms are done correctly liberal 
thinking is urgently needed.

There is no doubt that Social Security and Medicare are two of 
liberalism's most enduring and popular triumphs. And there is no doubt 
that a vocal and influential minority remains true to its strong 
conservative belief that the Social Security Act of 1935 and the 1965 
amendments to this act, which created Medicare and Medicaid, represent 
socialistic and dangerous interferences with the marketplace. However, 
liberals are wrong to fear that President Bush's proposal represents a 
threat to Social Security.

I sincerely hope they do not merely defend their proudest achievement. I 
hope they see that President Bush is giving them an opportunity to 
finally do something about the rich getting richer and the poor getting 
poorer.

First of all, fears that Social Security will be destroyed are 
exaggerated. Across all generations and within both major parties, 
Social Security and Medicare are seen as a vital part of American life. 
They represent a powerful intergenerational contract between younger 
Americans in the work force who agree to be taxed on behalf of older, 
eligible Americans. What makes the contract work is that the expectation 
of those in the work force is that when they pass the age of 
eligibility, successive generations of workers will not object to the 
taxes that must be imposed on them to cover the costs of their income 
and health benefits.

Secondly, President Bush's fears of a bankrupt Social Security and his 
rhetoric of the program being in financial crisis are also exaggerated. 
Relatively small changes in taxes and/or benefits would restore the 
promise to all living beneficiaries--those eligible today and those 
eligible in the future. Unlike the situation that existed in 1983, when 
Congress and the president acted to avoid a financial crisis, today's 
financial problems are relatively small.

On the other hand, there are two problems with Social Security that are 
serious enough to be called a crisis. The first is that in eight years 
the income from a 12.4% payroll tax will be insufficient to pay the old 
age, survivor and disability benefits owed at that time. From that point 
on, Social Security will begin to redeem some of the hundreds of 
billions of dollars of Treasury bonds it has "accumulated in the trust 
fund" in order to issue monthly checks to beneficiaries.

Though these bonds are far from "worthless," as some critics allege, the 
picture of them "accumulating in a trust fund" is not accurate either. 
That is because, in order to convert these bonds into cash, the U.S. 
Treasury will use the cash from individual and corporate income taxes. 
While some income taxes are currently used to pay Social Security 
benefits, the dollar amounts do not pose a serious budgetary challenge. 
In eight years that will change. Coupled with the cost of Medicare and 
Medicaid, the annual benefit demands of Social Security will put real 
pressure on Congress to cut spending on defense and nondefense 
appropriations.

It is at this point in time that the demographic and monetary demands of 
the baby boom generation will become painfully apparent. The 
disinvestment in public infrastructure caused by the growth in Medicare 
and Medicaid will become even worse than it is today. And the nature of 
this crisis will be considerably more daunting than that faced squarely 
by Congress and the president in 1983. Liberals, who have silently 
watched the share of state and federal spending apportioned to the 
elderly grow at the expense of education, training, child care and 
research, will be appalled to discover how much their silence has cost them.

The second crisis is the one for which liberals are even more urgently 
needed. This crisis is the shockingly low rates of savings and pitifully 
inadequate amount of preparation being made by American households for 
their old age. If liberals were to join this debate and insist upon 
provisions that would lead to dramatic reductions of the numbers of poor 
elderly, the outcome could be a dramatically enhanced quality of life 
for all, reduced dependency upon welfare in old age, and downward 
pressure on the social costs of growing old.

If liberals joined this debate they would insist that the guaranteed 
transfer payment of Social Security remain intact. With the evidence 
that trade, technology and immigration are putting downward pressure on 
unskilled wages, they might even be able to succeed in changing the 
current benefit formula so that more than 50% of the first $900 of 
income was replaced. Perhaps they could even convince their Republican 
colleagues to eliminate penalties that affect stay-at-home women.

Liberals would fight to make certain that contributions to private 
accounts were progressive in order to benefit lower-wage workers. They 
might even argue that accounts be opened at birth, thus giving Americans 
the longest possible time to accumulate wealth. No doubt they would 
insist that investment options be carefully regulated to keep 
administrative costs and risks as low as possible. And since liberals 
oftentimes understand the good that markets can do even more than some 
of their conservative colleagues, they could see the wisdom of changing 
the tax code so that no income taxes were levied on income that went 
into these savings accounts. All of these would practically guarantee a 
muscular market response that would give future Americans larger amounts 
of insured non-employment income to add to the $800 per month on average 
they receive from Social Security.

None of this will happen if liberals merely shout "hell no, we won't 
go." The best they can hope for with that strategy is to prevent reform 
from happening. They should feel no pride of accomplishment if that is 
the result.

Mr. Kerrey, a Democratic former senator from Nebraska, is the president 
of New School University, in New York City.