Social Security: Sticking His Neck Out

By John Cloud

Social Security reform has been a protracted game of chicken, but finally it was President Clinton who had to make the first move. For years, neither he nor congressional Republicans have wanted to be the first to offer a major reform package, since whoever did so would surely get hammered by the other side. But Clinton needed a bold idea in his State of the Union address to help divert attention from that little matter in the Senate.

The Clinton plan would consecrate most of the budget surplus over the next 15 years to Social Security, delaying its collapse from 2032 to 2055. For the first time the plan would also allow 15% of the fund to be invested in the stock market, so that some of our Social Security dollars could earn as much as those in our mutual funds. (Now invested in Treasury bonds, the money earns from 4% to 5% a year--only a bit better than shoving it under a mattress.)

Clinton got the public applause he wanted: in a TIME/CNN poll last week, 61% of those surveyed said they agree with dedicating all or most of next year's surplus money to Social Security, vs. 31% who think it should be used to lower taxes. But Clinton's plan also absorbed the expected blows. Though the minority leaders in both houses endorsed the plan, other Democrats think even microscopic tinkering with the party's hallowed invention--let alone Clinton's fairly substantial changes--would be unacceptable. Many Republicans--who want to use much of the surplus for tax cuts and favor "privatizing" Social Security by letting people control their own investment accounts--also savaged Clinton's proposal. House Ways and Means Committee Chairman Bill Archer's subtle response: "A thousand times no."

The most battered part of the plan was the stock-market idea. Corporations hated it. Members of Congress in both parties hated it. And, most important, Federal Reserve Chairman Alan Greenspan--the patron saint of our prosperity--hated it. "I do not believe that it is politically feasible to insulate such huge funds from government direction," he said. That's Greenspanese for a simple concern: by investing some $700 billion in Social Security funds, the government-cum-shareholder would inject politics into the free market and unduly influence corporate decision-making. Would the government, for example, bring an antitrust or discrimination suit against a company it (partially) owns?

It's a little precious for Republicans to cite these worries, since the notion of investing Social Security funds in the market has been kicked around the G.O.P. for years. And Treasury Secretary Robert Rubin had a nice retort to Greenspan: an independent body would oversee the investments, he said, so "there will be no--zero!--government involvement...I might add that the Federal Reserve Board itself is a very good example."

Even if the final legislation looks nothing like what Clinton proposed, the President's plan will at least mark the end of the politics of avoidance on this issue. Archer, who has announced his retirement, would love to cap his years in Congress with a major deal. Historians may also smile on the plan. After all, a game of chicken ends only when the more responsible player swerves to avoid disaster.

--By John Cloud. Reported by Adam Zagorin/Washington

With reporting by Adam Zagorin/Washington