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Friday, February 18, 2005

By Ralf Seiffe

OPINION - Newspapers report that Illinois’ Republican Congressional delegation is undecided even as many other Republicans and almost all Democrats line up on opposite sides of the Social Security privatization debate.

Democrats are organized. Congressman Charles Rangel (D-NY) speaks for them when he refers to private accounts as a “crapshoot in the stock market”, pledging to stop any attempt at privatization. In contrast, Republican Congressmen, but none from Illinois, take strong, opposite positions.

Both sides are selling their position as “best” for workers in the future but the real battle is over how to spend the Social Security surplus, now.

Since Fiscal Year 1969, the final budget shaped by Lyndon Johnson, the feds have commingled Social Security taxes with the government’s general revenues and spent it on things other than Social Security benefits. Had he pulled the same fiscal trick as a private entity, he would have been indictable for embezzlement.

Republicans did damage, too; Richard Nixon presided over the indexation of benefits that started just before the great inflation of the 1970’s. By the time Ronald Reagan got inflation under control, the benefit structure had grown permanently larger, molested by the magic of compound interest.

A generation ago, those runaway benefits required a tax increase that raised Social Security “contributions” to one-eighth of most paychecks. To “save” Social Security, Congress overtaxed American workers, promising to put the excess away for baby boomers retiring in the then-distant future.

Last year, these surpluses amounted to more than $100 billion and Congress happily spent it as they have almost every year since 1969.

This may help explain why Illinois’s Republican delegation isn’t too hot to start private accounts. By keeping control of those contributions, they can continue to spend them. After years observing the Illinois Combine’s collegial habits, they understand the pleasures of bipartisan, public spending.

That is a short-sighted position if their object is to maintain a majority like the Democrats did after the 1932 election. Among the reasons Democrats enjoyed their nearly unbroken incumbency was that voters identified them as the party that produced Social Security. As long as it produced more revenues than the benefits cost, the Democrats enjoyed the voters’ support.

Those Happy Days and political dynamic are nearly over. Demographics are eroding the surplus now and meaningful surpluses will soon disappear. If one adds the cost of Medicare, we are already in deficit; Social Security is now unable to enable Congress’ spending addiction.

Undecided Republicans are missing an opportunity they will regret and, rather soon.

First, if they refuse to face the Democrats and fix the system, they hitch themselves to a wagon whose wheels have already fallen off. The Democrats point out that there will be a Social Security surplus for at least a decade but they ignore Medicare. The real contribution our combined, payroll-taxed, social programs makes is already immaterial and in the next three or four years will start to become painful. This fiscal reality will force taxes up and expand means testing for benefits. That will most affect upper income individuals, predominantly Republicans. If that happens, in the absence of a settled Republican alternative now under debate, control of Congress will likely change.

A second reason to create these accounts is to change the average working American’s perception of the purposes of government. This is terrifying for Democrats. Each quarterly private statement will remind workers they have a real stake in the success of America.

Workers will want their accounts to do well for their own retirements and for their children’s legacies and, over time, voters will begin to recognize the value of private accounts. Within 15 years, Americans will demand the entire 12.4% that Social Security now sucks into its Ponzi scheme to be redirected into private retirement accounts. Republicans should lead that expansion because when it occurs, Americans will support public policies that are more growth oriented and less redistributive.

Finally, our undecided Republicans should think again and seize the opportunity to create a long-term “Republican” issue. By privatizing accounts, the GOP will suffer some short term pain but will soon own the “retirement” issue as thoroughly as the Democrats did for the nearly 70 years with Social Security.

Since the first transfer payment slid through mail slots in 1937, Democrats have not only enjoyed credit for authoring Social Security, they’ve also bludgeoned Republicans with the “take Social Security away” myth.

By restructuring Social Security, Republicans can fairly turn the argument around, taking credit for a better system and forever scold Democrats who “want to tax your retirement away!” That’s a powerful and credible claim given the nature of Democrats.

Who is most likely to make that happen? I would say conservative Republicans and voters will too. That’s something those undecided Republicans, especially from Illinois, should think about now.

And, what’s the risk? The crapshoot, as Charlie Rangel calls the stock market, is simply the barometer of America.

More than just a reflection of the economy’s condition, the stock market is a combination of American ingenuity and our confidence in the future. Any politician who believes the market is a long-term risk tells us, quite explicitly, that he has no confidence in the future of the America people. He admits uncertainty that the government can maintain conditions that have rewarded equity investors for 150 years.

Such politicians deserve their own “no confidence” vote--and early retirement, too.

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Ralf Seiffe advises business start-ups and product launches from Chicago, Illinois and is a political analyst and columnist for the Illinois Leader.