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Friday, July 08, 2005

Will the Supreme Court Derail Bush’s Legislative Agenda?

I have a question for your collective intelligence which I’ve learned is quite impressive.  Does the lack of attention on Social Security due to the focus on the Supreme Court make it more or less likely that reform legislation will make it to a vote?  It’s an opportunity to let reform die as attention moves elsewhere, but it's also an opportunity to proceed without much scrutiny, and there are probably lots of considerations I haven't noted. There have been very few stories recently. There’s also stem cells, flag-burning, immigration reform, asbestos lawsuits, gun liability legislation, and other legislation that may or may not have an easier time due to the lack of focus.  This article leans towards the position that reform will be more difficult, and I am leaning in this direction as well.  Thanks to Jonah of CardCarryingMemeber for passing this along:

High court fight threatens to derail Bush's agenda, By Jill Zuckman, Chicago Tribune:  President Bush finally has an opportunity to reshape the Supreme Court … But Bush's reward may come at a big cost, as his second-term legislative agenda … "Legislators have a limited attention span," said Darrell West, a Brown University political scientist. "They can deal with one big issue at a time, and the court battle is going to be so ferocious it's going to suck all the oxygen out of the system. There's not going to be room for discussion of anything else."  One of the first casualties may be Bush's plan to overhaul Social Security--his top domestic priority. … Similarly, immigration reform, another pet issue for the president, is unlikely to emerge out of the Supreme Court thicket, partly because Republicans are split over how to address the issue. One faction is eager to liberalize the system to bring in people willing to take low-wage jobs, a position Bush supports, while the other side wants to crack down on illegal immigrants in the name of national security. … Republicans insist they have long prepared for a Supreme Court vacancy and expect to stick to a rigorous legislative schedule through the summer and fall.  "I really do think the Senate ought to be able to walk and talk and chew gum at the same time," said Sen. John Cornyn (R-Texas), a Judiciary Committee member who is eager to move bills on limiting asbestos lawsuits and reforming immigration. … Eric Ueland, chief of staff for Senate Majority Leader Bill Frist (R-Tenn.), noted that the 109th Congress will last through the end of 2006, leaving plenty of time for both legislative and nomination work…. Ueland pointed out that the Judiciary Committee has finished work on an asbestos bill, and the full Senate is expected to take up embryonic stem cell legislation next week. Frist also hopes to take up a constitutional amendment prohibiting flag-burning, already approved by the House, as well as gun liability legislation. … And if it is not done this year, lawmakers may find it even more difficult to do in 2006 as they gear up to run for re-election, making them even less inclined to forge bipartisan compromise…

Tom Bozzo at Marginal Utility, who has a keener eye than I do, points us to this article on Social Security reform from yesterday's Washington Post.  This article discusses attempts to clearly define how the accounts would actually work, something unclear to this point.  The administration is considering accounts where returns are tabulated only once a year to save on administrative costs (an important consideration given that the accounts could be as small as $588 per year in contributions) rather than on a monthly basis as with 401(k) plans.  But there is worry such a plan, which could involve lag times as long as 15 months before earnings are credited to accounts, will not be palatable.  I don't know if it will come to a vote, but this indicates efforts to move reform legislation forward are continuing:

Cost, Speed at Crux of Social Security Debate, No-Frills Plan Would Save Money but Also Create Delays in Crediting Proposed Private Accounts, By Jonathan Weisman, Washington Post: Faced with a choice between low administrative costs and expensive 401(k)-like service, Bush administration officials indicated this week they may favor a no-frills system of Social Security personal accounts that could leave a long lag between when workers contribute and when those contributions are credited to an account.  In public, the nuts-and-bolts issues of how private accounts would actually work have been lost in the debate over whether to establish such accounts at all. But Republican leaders in the House have raised the issue of administrative costs anew by embracing a proposal that would create the accounts but severely limit their size.

Under this plan, accounts would be funded by only the surplus of cash that Social Security will be running over the next decade. Administrative costs would remain the same as with the larger accounts Bush has proposed, but they would eat into annual contributions that would be limited to as little as $588, even at the system's peak.

"This is an important issue because people have been left with the impression that all this would operate like a 401(k)," said Lawrence H. Thompson, an Urban Institute economist and former senior official at the Social Security Administration. "And it would not."

For policy administrators, personal accounts involve a trade-off between cost and speed. A low-cost system could mean contributions would not be credited to accounts for 18 months or more. When presented that choice, White House and Treasury officials emphasized their concern over cost and paperwork burdens.

"Clearly we're very sensitive to the burden issue and the administrative cost issue," said Mark J. Warshawsky, assistant Treasury secretary for economic policy.

Policy work has emphasized "keeping costs very low and administrative costs on employers down," said Trent Duffy, a White House spokesman.

Stephen C. Goss, Social Security's chief actuary, said he expects that under any final Social Security plan, the SSA would calculate contributions based on final earnings data forwarded by the Treasury. That would leave an average lag time of 15 months from the withholding of contributions to the crediting of accounts.

As congressional aides consider the details of personal accounts legislation, they must choose between starkly different approaches. Employers could be required to treat the accounts like 401(k) plans, separating employee contributions from Social Security taxes each paycheck, earmarking those contributions to reflect employee investment choices and sending them either to the government or directly to an investment manager each pay cycle. Or the system can be kept simple, with employers calculating account contributions only when they calculate individual tax payments, once a year with employees' W-2 forms.

The first option was chosen by Chile and other Latin American countries when they established systems of personal accounts for their state pension systems beginning in the 1980s. It offers employees a strong sense of ownership and the gratification of watching their accounts grow with each paycheck, but it comes at a price -- paperwork for employers and administrative costs for employees. Last year, insurance and commission costs ate up 18.5 percent of contributions to Chilean accounts, according to Chilean pension data.

The second option was adopted by Sweden for its private accounts system in 2000. At a cost of 0.7 percent of an average participant's assets, the administrative burdens are low, according to a recent analysis by three Swedish economists. But because contributions are tabulated only once a year, after tax data is sent to the government, contributions on average are not credited to accounts for 18 months.

Some pension experts say such a delay may be politically unacceptable to Americans used to the nearly instant gratification of their 401(k)s. But the alternative administrative costs and paperwork burdens may be even worse. In public, the National Federation of Independent Business, a powerful small-business lobby, has strongly backed President Bush's Social Security push, but privately, members have expressed concern about the potential paperwork burden. A survey in 1998 found that 70 percent of small-business owners backed investing Social Security taxes in private stocks and bonds. But upon further questioning, half decided private accounts would be "a serious burden."

"We've talked about it a lot," said William "Denny" Dennis Jr., an NFIB senior research fellow. "If this moves forward, this will be a key issue for us."

Cost may also drive the decision. A 2001 Social Security Administration paper analyzed a no-frills plan and one with a higher level of service, finding start-up costs ranging from $1.2 billion to $2.3 billion, and annual operational costs at $700 million for the low-end plan and $3 billion for the more responsive system. Kelly A. Olsen, one of the study's authors, said those high-cost estimates probably understate the true price.

The SSA study also estimated that the low-cost system would require 7,735 additional employees to operate it, while the high-cost version would take 33,630 new workers.

Given financial constraints and the political clout of small businesses, Congress may have little choice in how accounts would be structured.

"It's a given that we will collect [contribution data] once a year," Thompson said. "The employer community would go bananas if you told them they had to collect and disburse this money once a month."

Large employers with established, electronic 401(k) systems could be allowed to piggyback personal accounts onto those private plans, suggested Dallas Salisbury, president of the Employee Benefit Research Institute. But more than 85 percent of the nation's 5.6 million small-business employers offer no such plans. That could lead to a two-tiered accounts system.

"If you work for GM, in a matter of weeks, your contributions could be credited to your account," he said, "but for Joe Shoeshine Stand, it could be somewhere within two years."

And that would raise new questions over equity and fairness, said Virginia P. Reno, vice president for income security policy at the National Academy of Social Insurance. "How do you achieve your [policy] purpose if the size of employer determines real eligibility?" she asked.

    Posted by on Friday, July 8, 2005 at 09:26 AM in Economics, Politics, Social Security | Permalink  TrackBack (0)  Comments (7)


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