|BUSINESSWEEK ONLINE : APRIL 3, 2000 ISSUE|
Suddenly, Bush Is Mr. Social Security
The GOP front-runner rushes to seize the high ground staked out by McCain and Gore
John McCain's insurgency lured armies of independents and Reagan Democrats into the Republican primaries. But as a policy tutorial for GOP standard-bearer George W. Bush, McCain's crusade doesn't seem to have made much of a mark. Asked by The New York Times on Mar. 15 if his rival's reform platform caused him to reconsider his own stands, Bush said: ''No, not really.''
That set some teeth gnashing in Bushdom, since party elders think a rapprochement between the prickly Arizona senator and the brash Texas governor is overdue. But despite the curt dismissal, it appears Bush is moving to embrace some of McCain's most potent reform rhetoric.
CONVERTS. Bush is best known on the economic front for his call for a $1.7 trillion tax cut, but no sooner had ballots been counted after Super Tuesday's primaries than he began underlining his pledge to shore up the retirement system. ''I will reach across party lines to strengthen and preserve Social Security,'' he said on Mar. 7.
Few thought the timing was accidental. Throughout the primaries, McCain won converts by contrasting his call for reserving two-thirds of future surpluses for retiring baby boomers with Bush's surplus-gobbling tax cut. Even as Bush was grinding McCain down, polls showed that a majority of GOP voters considered the idea of paying down the national debt more prudent.
Since the specter of tax cuts threatening Social Security was first raised by President Clinton, Al Gore knew the drill. Playing off McCain's message, he is telling voters that Bush's tax plan amounts to ''economic snake oil'' that puts retirement benefits at risk. ''Bush's internal polls show just how much damage McCain has done on Social Security,'' says one GOP strategist. ''With Gore poised to do even more harm, they're trying to inoculate Bush.''
Still, vowing to fix Social Security is one thing. Devising a concrete strategy for doing it is another. Thus far, Bush has been reluctant to unfurl his reform blueprint. According to the fund's actuaries, the system faces its next crisis in 2032. That's when the government could be forced into raising payroll taxes, slashing benefits, or both. On Mar. 31, the actuaries are expected to issue a new forecast.
So far, Bush says he will treat the Social Security surplus as an inviolable ''lockbox'' despite fellow Republicans' repeated raids on it. He pledges not to trim benefits for retirees. He promises to boost investment return via voluntary ''personal savings accounts.'' And he insists he will forge a bipartisan solution for the festering problem--in his first six months in office.
One path Bush may choose to follow has been laid out by Harvard University economist Martin S. Feldstein, a member of his advisory team. Feldstein proposes that the government earmark part of future surpluses to finance ''personal retirement accounts'' that individuals could use to buy stocks and bonds. Taxpayers would get a government deposit amounting to 2.3% of annual wages to start their accounts.
The former chief White House economist reckons his plan would be self-financing by 2030 because of higher returns. To limit investors' risk, regulators would guarantee a minimum benefit level. ''Bush has a commitment to protect [current] retirees completely,'' says Feldstein. ''They should stop worrying about it.''
The principal difference between this proposal and President Clinton's 1999 reform plan is that Feldstein doesn't let the feds directly enter the financial markets. Senate Banking Committee Chairman Phil Gramm (R-Tex.), whom Bush is counting on to spearhead entitlement reform, is interested in the Feldstein approach.
But questions remain. Will the retirement age have to go up? And does the Bush tax cut leave enough of a cushion for the transition to a self-financing retirement system? For now, Bushies refuse to get drawn into details, although the Texan is expected to make a speech soon on his philosophy of entitlement reform. ''The real reason they don't have a plan is that they want to privatize with a version of the Feldstein plan,'' says one economist familiar with discussions in the Bush camp. ''They're afraid Gore is going to hit them over the head with it.''
''END ZONE.'' Bush's problem, however, is that he needs details to convince McCain supporters that he's serious about reform. Democrats will be an even harder sell. Exit polls show Democrats with a huge advantage over Republicans on the issue of which party will do more to protect Social Security. A new survey released on Mar. 17 by pollsters Edward Goeas and Celinda Lake found that, among all voters, Gore leads Bush 49% to 36% on Social Security. ''Any Republican starts out deep in his own end zone on this issue,'' says Brookings Institution economist Henry J. Aaron.
To complicate matters, neither Bush nor McCain seems willing to forgive and forget. The still-smoldering senator is weighing the creation of a new Straight Talk America organization to rally his Third Force supporters behind his agenda. That could give him a platform to keep lobbing missiles at Bushonomics. Gore, for his part, has shown that he'll stop at nothing to make his opponent look menacing to seniors. For Bush to convince voters that he's credible as a Social Security savior, he'll have to navigate some of the most treacherous waters of his campaign.
By Lee Walczak and Rich Miller in Washington
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Suddenly, Bush Is Mr. Social Security
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