"I wonder what they will ever do if we approve something. That's a little frightening to think about."
Bill Frenzel, former Republican congressman from Minnesota and current member of President George W. Bush's Commission to Strengthen Social Security, made that observation this Tuesday at the Capitol Hilton. The commission had gathered to go over the draft interim report it unveiled last week as part of its attempt to save Social Security. Despite the fact that the commission has not even finalized the interim report, panicked foes of privatization came out in droves. The mayhem included a noisy union picket line and dueling press conferences in which commission opponents vied for press attention by offering a free lunch. The highlight came when Rep. Robert Matsui (D-Calif.) blamed the whole imbroglio on Washington's newest–and unlikeliest–political juggernaut: the libertarians.
Bush formed the bipartisan, 16 member panel on May 2 to study what impact private investment accounts might have on the system. The interim report, which was supposed to tackle the seemingly modest task of defining the problem, says Social Security will be flat broke by 2016 unless a fix is in place soon. That prediction has sparked a war.
It all comes down to the "trust fund." Since the mid-80s, the federal government has collected far more than it has needed to cover Social Security outlays. The dream was that the feds would deposit the extra money in a trust fund for rainier days—namely, when the baby boomers start to retire. But all the money is gone; instead of creating an impregnable "lock box," the feds simply spent the loot. Of course, each time they took some dough, they promised to pay it back. The trust fund now holds more than $1 trillion in Treasury bonds. "It is backed by the full faith and credit of the federal government," according to commission member Tim Penny, a former Democratic congressman from Minnesota. "I want to stress the word credit because there isn't money there. It's backed by our ability to borrow and put money there." When the Social Security Administration comes calling with the bonds, the federal government will have to either take money away from other programs or raise taxes to bring in more.
The other side argues that insolvency won't hit until sometime around 2038. That's when the Treasury bonds run out. They say the government IOUs are as good as gold. "The fact that these bonds are 'paper' assets does not in any way reduce their value," according to to a lengthy response to the draft interim report issued by The Century Foundation, a New York-based think tank. According to that argument, it doesn't matter that the money is already spent, as long as you trust the feds to pay it back.
The Institute for America's Future and the National Committee to Preserve Social Security and Medicare tried to drive that point home during the commission's lunch break. They held competing press conferences, offering free food to anyone willing to listen. At the IAF function, emcee Roger Hickey argued that Bush cronies were consciously frightening people to soften them up for the "radical" privatization solution—you know, the one in which individuals would get to control a tiny portion of their mandatory retirement taxes. Gerald McEntee, international president of the American Federation of State County and Municipal Employees, was even more charged up. He said he was so upset with the interim report, "I thought I would come here today and just rip up my Social Security card." Claiming also to speak for the AFL-CIO, McEntee continued that the report "is a sham and a disgrace." Despite the fact that the commission has not yet formulated a privatization plan, he said any such maneuver would mean slashed benefits and uncertain futures for all American workers.
It was after McEntee's theatrical outrage that Rep. Matsui fingered meddling libertarians as the villains of the piece. "It would really be a tragedy if some of these commissioners would become tools, would become agents of the Cato Institute," said Matsui. "Because many have had long and distinguished careers and I would have to say that this is really the Cato Institute that is behind this, and some individual groups on Wall Street that are funding the Cato Institute."
Risking exposure as one of the free-market infiltrators, I identified myself as a reporter from REASON and asked Matsui where the feds would get the money once Social Security came calling with the bonds. "It all depends," he said. "If we didn't have that massive, irresponsible tax cut, it probably would have come out of the general fund surplus." By using the trust fund money to pay down the debt, Matsui said Congress had strengthened the economy and raised savings, which will allow them to save the system. When asked by another reporter if the fix would require cutting benefits or raising taxes, Matsui responded that "You can have all different kinds of approaches to take."
Either way, something strange is happening in Washington. It's not everyday that Republican presidential administrations apply (or attempt to apply) market solutions to doomed social programs. Equally rare are Democrats arguing that those same programs are on firm financial footing as it is. Here's hoping that the free-market juggernaut will continue to exert its undue influence once the debate shifts from accounting practices to actual reforms.