Departments

Update on Social Security

A recent Wall Street Journal indicates, GOP Congressional leaders have run into major problems in their drive to privatize Social Security. It now looks like they are going to abandon Bush's private accounts, and instead focus on proposals that are designed to shore up the solvency of the Social Security system. But even this is highly problematic for them.

It has become increasingly clear in recent weeks that GOP leaders cannot muster the votes for any proposals that would divert Social Security payroll taxes into private accounts. Polls show the public opposes such proposals. House and Senate Democrats have remained united in their opposition to these proposals. Some Republicans have also announced their opposition, and others have privately expressed their misgivings to the GOP leadership.

As a result, Senate Finance Committee Chairman Chuck Grassley (R-Iowa) and House Ways and Means Committee Chairman Bill Thomas (R-Calif.) are reported to be assembling proposals that do not divert payroll taxes to private accounts, but instead focus on measures to strengthen the long-term solvency of the program. In particular, it looks like they will propose deep benefit cuts for middle and upper income retirees (the so-called "progressive indexing" proposal advanced by Pozen) and increases in the retirement age. However, polls indicate that these proposals are also highly unpopular. This should give the UAW and our allies a fat target to hammer away at the Republicans.

There have been reports that Chairman Thomas will try to include other, non-Social Security items in his package in order to buy support and votes from various groups. This could include pension provisions (e.g. the multi-employer pension fixes sought by the Teamsters and Building Trades), as well as tax goodies to the insurance industry and other sectors. But House Speaker Dennis Hastert has indicated that he is reluctant to bring any Social Security package to the House floor if it looks like the Senate will not be able to pass anything.

In theory, Grassley and Thomas have said they want to mark up Social Security legislation in July. Thus, they will have to unveil their proposals in 3-4 weeks, or else risk having the entire issue deadlock and get moved to the back burner.

I'll keep you posted on further developments.

Alan Reuther