Home >> United States & Canada >> Social Security & Health

     Email   Print 

Means-testing of Social Security: Double-Edged Sword

Ross Kaminsky - 5/5/2005

Following President Bush's proposal to means test Social Security, our moderate local newspaper announced "Bush to seek adjusted benefits" while the more liberal paper fretted about "Cuts in Social Security". While initial media reaction was predictable, further analysis shows that means testing is far from a clear winner, either economically or politically, for either political Party.

Bush proposes to accomplish differential benefits by varying the method of indexing depending on income levels. Currently Social Security benefits are adjusted based on changes in wage levels in the economy. (Wages tend to rise faster than prices, accounting for long-term increasing levels of wealth and quality of life for Americans.)

Under Bush's proposal the higher a worker's income, the more his benefit changes would be based on prices rather than wages. This will give low income workers benefits at least equal to what they have under the current system while cutting payments to middle- and upper-income workers.

Conservatives approve of substantially decreasing the amount of money going through Uncle Sam's hands. Liberals are appalled. Some liberals approve of making the system more "progressive", turning it into an anti-poverty program rather than a "retirement" system. Conservatives are appalled.

The lack of common ground has led to means testing having little support in Congress. That may change, but conservatives would rather have price indexing for everybody and liberals for nobody. Although the best compromise is usually one where nobody is completely happy, neither side really likes the President's half-measure idea…and neither side is telling the truth about its position.

George W. Bush does not believe in redistributive economic policies and other forms of class warfare. So what is his motivation to make this suggestion? First, he is willing to compromise on his tax-cutting principles and distaste for the welfare state in order to break the reform logjam. Second, cutting benefits for higher income workers increases the appeal of personal accounts to make up for those cuts. Third, it puts him in the role of "problem solver" while putting the Democrats in the center of a political minefield.

The Republican position is fairly simple unlike Democrats who, because of politics more than ideology, argue against the traditionally liberal idea of means testing and are plainly afraid of any Social Security reform.

Real reform, whether through benefit cuts or personal accounts, reduces the amount of money flowing through the Federal Treasury. This leaves the Democrats in the unenviable position of having to oppose any change other than tax increases, which the President will not seriously discuss. Thus, Democrats are forced to be obstructionists, a position which is difficult to hide from (as Tom Daschle can attest.)

Democrats say they do not want Social Security to become a poverty program. That is true, but not because they care about higher-income workers' or because they oppose welfare systems. They simply don't want to lose middle class support of the Social Security system, something likely to occur if it turns into a transfer-of-wealth mechanism. So Democrats have to oppose means testing despite approval among traditionally Democratic lower-income voters.

There is another critical political aspect to the Democrats' position: their effective marriage to unions causes both to need each other to stay as powerful as possible. Democrats keep unions powerful through legislation and unions support Democrats with money. Both are keenly aware that investors vote for Republicans over Democrats by a 15 percent margin and that personal accounts would convert many long-time Democrats into investors.

Since substantial reform in tax and entitlement programs would erode the power of the Democratic party, they and unions are fighting intensely against any reform and particularly against personal accounts - they give people and not government control over the money.

The Democrats' anti-reform arguments are not based on sound economics, nor are they based on their own constituents' interests (other than unions) but the arguments are nonetheless being made very effectively by unions and the AARP.

Republican proposals, while often politically motivated, are more sound economically. But they have been unable to outmaneuver the opposition in marketing Social Security reform. Where the GOP is arguing to reduce government power and to solve a problem, the Democrats and their union masters are much more motivated: they realize just how much power they stand to lose if there is any real reform.

A cornered animal is the most dangerous kind, and the Democrats are cornered. It remains to be seen whether the GOP will keep pursuing reform or just back away.