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Wednesday, June 22, 2005

Is the Administration Dropping Private Accounts or Not? Yes and No.

There are several different articles on Social Security reform describing Republican Senator Bob Bennett’s proposal that excludes personal accounts and Bush’s head nod in his direction. CNN has both the AP and Reuter’s versions, and both Yahoo and BusinessWeek Online have another AP report. The position of the administration is a bit puzzling at first glance as it both embraces a proposal without personal accounts and simultaneously declares that personal accounts are a necessary part of any viable solution. Here’s the AP report from CNN. It amazes me that this report does not even mention that Bennett’s plan would cut benefits (Why oh why can't we have ...):

GOP senator to propose plan sans private accounts, AP: President Bush encouraged a Republican senator … to offer Social Security legislation that would not include private investment accounts … "He indicated that I should go forward and do that," Bennett said. … "This in no way should be interpreted to mean that the president is backing off of personal accounts," White House spokesman Trent Duffy said. "He is not." … Bennett said some Democrats have told him privately that they would support such a bill ... He said he is looking for Democrats to co-sponsor the bill, but he didn't have any to announce Tuesday. "We've had a lot of interest," he said. "We have a lot of hope that we can use this bill to break the logjam ..."

Rueters also carried the story and covers most of the same ground as the AP report. Importantly, the Reuters report adds that Bennett’s plan would cut benefits:

Bush may be flexible on accounts, Reuters: … Duffy said the White House understood that Bennett's plan would incorporate Bush's proposal to slow the growth of benefits for middle- and upper-income workers by linking them to prices rather than wages. On Tuesday afternoon, Bennett told CNN's Ed Henry that his proposal would maintain the scheduled growth in benefits for the bottom 30 percent of earners. …

Finally, another AP report (at Yahoo and BusinessWeek Online) notes a plan to divert the Social Security surplus into personal accounts (this plan is discussed here). It also discusses Bennett’s plan but does not add anything beyond the two reports discussed already.

So what’s going on here? Why is Bush supporting legislation that doesn’t include personal accounts while simultaneously saying he is not backing off of personal accounts? He realizes that any proposal including personal accounts is a non-starter. So, in order to get the ball rolling he has to allow the initial proposal to drop personal accounts. For now, the goal is to build momentum towards change. Once that is underway and a proposal appears that has a chance (if that is even possible at this point), he can try and tack personal accounts onto it later as it passes through the legislative process.

If a proposal without personal accounts goes through, then he can claim he saved the system from catastrophe and declare victory. If a proposal without personal accounts gets stalled, he can say he gave the Democrats what they wanted and they still stood in the way sticking them with the obstructionist label. Given the polls concerning the number of people who believe reform is needed, this is a viable strategy. And if somehow a proposal emerges and momentum for change builds to the point where compromise that incorporates personal accounts is embraced by Democrats, then he will most certainly declare victory. So long as he can get something rolling that appears to embrace compromise, the politics turn in his direction.

The Democrats need to tread carefully.  It’s still possible to snatch defeat out of the jaws of victory.

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    Posted by on Wednesday, June 22, 2005 at 02:34 AM in Economics, Social Security | Permalink  TrackBack (0)  Comments (1)


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