Social Security Debate Underway in Senate
It was Republicans vs. Democrats, personal accounts vs. solvency, dessert vs. spinach when the Senate Finance Committee held its first hearing on Social Security reform on April 26.
It's the mother of all magic asterisks.
Little new ground was broken at the hearing, as members of the two parties staked out their traditional positions and witnesses made the expected arguments for and against the personal investment accounts that are being promoted by President Bush. Democratic members of the panel were more united in their opposition to personal accounts than Republicans were in support, though. Sen. Olympia Snowe, R-Maine, in fact, made as vigorous a defense of the existing structure of Social Security as any Democrat, asking, "At what cost, at what risk is it worth it to erode the traditional, basic, guaranteed benefit?" With Republicans needing every GOP vote - plus a few Democrats - to get a personal accounts bill through the Senate, the wariness of Snowe and others in her party does not bode well for the proposal.
On the witness panel, Peter Ferrara, a senior fellow at the Institute for Policy Innovation, plugged a personal accounts bill that has been introduced by Sen. John Sununu, R-N.H., and Rep. Paul Ryan, R-Wisc., in their respective chambers. The legislation, he said, would restore solvency to the program, most likely provide better benefits than are currently promised - but would guarantee at least the level now promised - and result in no new government debt. Sen. Ron Wyden, D-Ore., mocked Ferrara's assertions, saying it was like claiming that a person could eat three hot fudge sundaes a day and lose weight. Brookings Institution Senior Fellow Peter Orszag, meanwhile, defended Social Security's defined benefit and criticized the proposal offered by Sununu and Ryan for relying on $7 trillion in unspecified spending cuts that would be used to finance the transition to personal accounts.
"It's the mother of all magic asterisks," Orszag said. "Without that money, the whole house of cards comes falling apart."
Orszag has designed a reform proposal with Massachusetts Institute of Technology Professor Peter Diamond that includes forced participation of all newly-hired state and local workers but he did not mention mandatory coverage during the hearing.
Robert Pozen, chairman of MFS Investment Management and a member of the 2001 Commission to Strengthen Social Security, discussed his proposal for "progressive indexing." Social Security benefits are now indexed to rise at the same rate as wages but some reform proposals would peg benefit hikes to the growth in prices, which increase at a significantly slower rate than wages, in order to reduce Social Security's unfunded liability. Pozen's suggesion, which has reportedly found some favor with the White House, would maintain wage indexing for low-income individuals and phase in price indexing as incomes rise. It is this and other measures that improve solvency that Congress should be focusing on, Pozen said, instead of dwelling on personal accounts, which may have some value but should not be the primary issue.
"So far, we have been talking about the dessert - the personal accounts," Pozen said. "We haven't been wanting to talk about the spinach" of restoring solvency to the program.
Finance Committee Chairman Charles Grassley, R-Iowa, said at the end of the hearing that he plans on having the panel - which must approve any Social Security reform bill before it can become law - "deal with this sometime this summer."