Tuesday, September 15, 2009

Kevin Drum Gets His History Wrong on Social Security Compromise

Cross posted from AEI's Enterprise Blog:

Kevin Drum, blogging at Mother Jones, argues that Ron Brownstein's comparison of the current healthcare reform impasse to the fight over Social Security reform in 2005 is misguided. Kevin said:

Maybe I'm remembering things through partisan-colored glasses, but my recollection is that there are some pretty significant differences here. George Bush never sought out any compromise at all. He insisted on a pure, budget-busting carve-out privatization scheme and never gave Democrats so much as a chance to make a deal. But what if he'd made it clear that he was open to compromise? Say, part carve-out, part add-on, and with a modest collection of benefit cuts and tax increases to go along with it? I suspect a lot of Dems would have been open to something like that, but Bush never gave them a chance.

This isn't how I remember things and I was pretty closely involved (this is what it got me, for what it's worth). What Drum presents is a caricature of the Bush administration's positions, one that is, no doubt, widely believed on the left, but a caricature nonetheless.

Consider some Social Security compromises made by President Bush:

1.    "Progressive price indexing," which would balance Social Security's finances by reducing benefits for middle and higher earners while leaving exempt low earners (those below the 30th percentile of the earnings distribution). Low earners could stay in the current system, with no personal accounts if they chose, and receive everything that was promised. By contrast, Bush's 2001 reform commission recommended "full" price indexing, which would have reduced benefits across the board.

2.    Progressive personal accounts: Accounts were (if I remember right) equal to 4 percent of earnings, up to a $1,000 max. So low earners could invest a larger share of their earnings, if they chose, and (in expectation at least) would receive larger proportional gains. Most conservatives would have favored a flat account structure where everyone invested the same percentage.

3.    Open to raising tax max: In the spring of 2005 Bush shifted direction on taxes: previously the administration had opposed raising either the rate or the cap, but in 2005 it refused to rule out raising the payroll tax ceiling. As the New York Times put it at the time:

"In what appeared to be an effort to show Democrats that he is serious about bipartisan compromise, Mr. Bush, responding to questions from a group of regional newspaper reporters, did not rule out raising or eliminating the cap on earnings that are subject to the payroll tax that pays for Social Security benefits."

This made it pretty clear that the administration would have accepted a tax max increase as part of a deal. And note, this was in February of 2005, when the process started, not a last-minute concession when the game was already finished.

In sum, the Bush administration said it would fix Social Security by cutting benefits for high earners and potentially by raising taxes on high earners. For the so-called party of the rich, that seems like a fair bit of compromise.

Likewise, would the White House have accepted a mix of carve-out/add-on personal accounts, as Kevin says they should have proposed? I have no doubt—as in, zero doubt—that it would have.

In short, the Bush administration was open to exactly the type of compromise Kevin says they should have been. So why no deal? For one reason and one reason only: the Democratic leadership refused to even discuss reform until carve-out accounts were taken off the table. Now, maybe they thought this was a good political strategy and good policy, just as many conservatives think we should oppose healthcare reform unless the public option is taken off the table. But make no mistake that it was the Democratic leadership's position which precluded any deal on Social Security, not the Bush administration's.

Megan McArdle also weighs in with other examples of how the Bush administration was open to compromise.

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