Tuesday, March 15, 2005

Why Should the Democrats Engage?

Another commenter on my post on Senator Hagel's plan asks:

I think I understand why you want them [the Democrats] to [put forward an alternative plan] - it would facilitate a bargaining process that would likely lead to an outcome you favor. But why is it so hard for you to see that it is far from obvious that their failure to offer an alternative plan will cost them politically?
The commenter draws an interesting parallel to the lack of a political price paid by the Republicans for refusing to engage on the Clinton health care plan and cites some polling results showing declining popular support for the President's plans for reform. The comment finishes with:

Seems at least possible that Democrats have a lot to gain just by opposing a plan that is becoming increasingly unpopular, no?

First, the commenter has my position essentially right--we are more likely to get a reform that restores solvency along the lines that I like if the Democrats engage. (See these two early posts for how I would do it.)

Second, I don't think the Clinton health care reform debacle is necessarily a good comparison at this point. My recollection is that even very few Democrats on the Hill wanted to touch that by the time the White House was done with it, and the Democrats were the majority party at the time. Much of the backlash also appeared to be directed at the First Lady's involvement in the process. And health care was never much of a Republican's issue--Social Security is very much a Democrat's issue.

Third, we can conjecture as to how the Republicans and Democrats would fare under the three relevant scenarios. I agree that it isn't "obvious" that the Democrats need to engage, but there are some potentially large risks if they don't. Here are my thoughts:

1) The strategy succeeds: Democrats refuse to engage, and the President's initiative fails without them.
What happens in the 2006 and 2008 campaigns? Republicans say that because of Democratic obstructionists, young people don't have personal accounts and the system still faces a long-term financial imbalance. No Democrat has any proposal of substance to say how he or she would have fixed the system. Democrats don't gain much traction on the issue of Social Security itself, but it's not like they campaign on it unless provoked.

On the other hand, the President would suffer one of his few electoral defeats. Who knows what kind of momentum that might generate? It could shift the political focus in the remainder of his term back onto issues where the President and the Republicans may be more vulnerable--chronic deficits on the domestic side, Iraq on the international side.
2) The strategy fails: Democrats refuse to engage, and the President succeeds in passing a reform without them.


Given the outline of the President's plan, we know that he will have two big talking points. First, on the day the plan is announced, the projected $10.4 trillion unfunded obligation in the Social Security system goes away. The President gets to say that he "saved Social Security" while the Democrats stood by and watched. Second, he will have added personal accounts to the system on a voluntary basis. The President gets to say that he transformed a "government program" into an "ownership society," again while the Democrats stood by and watched.
3) The strategy isn't adopted: Democrats engage and reform passes in a form that incorporates some of the Democrats' preferences.
The President still gets his talking points from #2, except that they cannot be made at the expense of the Democrats. The Democrats can also point to their contributions to the legislation and share some of the credit.
So the Democrats' strategic decision may be based on their assessment of the likelihood of each scenario and the electoral advantage or disadvantage in each case. It seems like #2 would be really bad for the Democrats, and if it appears like the President can hold his own party together (lowering the likelihood of #1), then we will get Democrats proposing plans of their own (leading to #3). Literally, Senator Clinton will have a plan with personal accounts.

Other people with more of a partisan interest in the Democratic party are weighing in on the same issue, generally at the expense of Senator Lieberman. Jonathan Chait is blogging for Josh Marshall over at Talking Points Memo and has this piece in The New Republic. (John's second round of comments on my earlier post prompted me to go read it.) Paul Krugman's column today has a similar theme.

Other blogs commenting on this post

8 comments:

PGL said...

Normally, I love your sensible posts but this one fails for two reasons: (a) we don't trust Bush to bait and switch any sensible bipartisan approach for some other (not so hidden agenda); and (b) if the Bush agenda passes, it has that price-indexing benefit cut (better called massive backdoor tax increase on young workers).

JG said...

Seems at least possible that Democrats have a lot to gain just by opposing a plan that is becoming increasingly unpopular, no?Geeze, the Democrats are so desperate to finally score a short-term point against Bush that they'll commit hari-kari to do it.

I'm almost tempted to believe Karl Rove has actually plotted all this all out.

Let's say the Dems keep selling the Pelosi-Reid plan....

"There's nothing wrong with SS for 40 years, the trust fund fully covers everything until then even if we do nothing at all! And then our grandchildren can make like Ronald Reagan and Tip O'Neil and work out a compromise to save SS for the following generations. No problem!..."

... and let's say the masses of voters buy it! So the Bush proposal is defeated and the Dems win a point against him. At last. Whoopie for them!

And let's say the Dems sell this spiel so well all the voters actually believe it for the next full decade.

Then in about 15 years the need to bail out SS with big income tax hikes arises. Remember, those trust fund bonds aren't going to pay off themselves, and the SS actuaries say income taxes are going to have to go up 35% by 2030 just to cover the trust funds supposedly already financed with FICA taxes.

All the voters then say: "... 15 years?? you said 40!!"

And they say: "You said the trust fund would pay for everything! But the trust fund is paying nothing, it's all income taxes!"

And they realize that what Reagan and O'Neil did back in 1983 was cut benefits by 50% of their shortfall (which was a heck of a lot smaller than the one coming by 2030).

So in a compromise to keep the taxes needed to cover the trust funds from rising the full 35%, benefits indeed are slashed again -- just as per Reagan and O'Neil.

And that leaves everyone under age 50, who already had their return from SS knocked negative by Reagan & O'Neil ... and who will have it knocked yet 25% further negative when the trust fund runs out ... having it knocked still further negative.

Which makes all those under age 50 big losers under SS, at the same time they are still being told to pony up maybe a 20% income tax hike to cover the trust funds for it ... at the same time they are being told to pony up another 30+% income tax hike for Medicare -- which Ted Kennedy and the Democrats also never told them they'd ever have to pay.

And who's going to get all the political credit for this?

Why the Democrats, of course, who told all the 50-year olds back when they were 30 that SS was hunky dory for another good 40 years even if we did nothing at all! ;-)

The Democrats then will go the way of the Whigs. But at least they'll remember having finally scored a point against Bush back in 2005, to bring this all on themselves.

That Rove is a genius, eh?

Merrill Bender said...

The answers to Social Security, economic growth and tax reform is the:

The Tier 2 Solution -

http://tinyurl.com/5my69

A "New Deal" for a New Generation

1. Revenue neutral Tax reform with the Fair Tax HR 25-(www.fairtax.org) which replaces all personal and business income and payroll taxes including AMT with a national Retail Sales tax. Prices drop 25% before you add in the sales tax, so consumers pay about the same as they do now but with a much larger paycheck going home. "Gives Every American Family a Raise." (http://tinyurl.com/6agz9 ) Economic growth first year of 10.5%

Reform Social Security into 2 systems for a New Generation. New Tier 2 System to be applied to all person born after 1975(30 years old or younger). Call them the Tier 2 Generation who start retiring in 2042.

2. Social Security Saftey Net is Account #1 with the pay out set at a flat saftey net level equal to the poverty line for an individual. Whether you are a maid or a millionaire you both have a saftey net that is equal. 2004 poverty line level is $9310 or $775/m.

3. Social Security Savings & Pension Plan - Account #2; For Tier 2 Generation establish a Thrift Savings Plan/Pension style account with matching funds from Uncle Sam. For every dollar the Tier 2 Generation saves in this account the Federal government will provide a 50% match up to $1,000 per year. Save $2000 in your Pension savings and Social Security matches with a maximum of $1,000.

You get 2 Social Security Accounts for the price of one. Account #1 - True Satandard Saftey net; Account #2 Portable Pension savings plan.

The savings from Account #1 provides resources for Account #2 making the entire system solvent for the Tier 2 Generation who are the children and grandchildren of the Baby Boomers.

Pension Account will allow for an annuity style payout only.
No borrowing from it. This Pension replaces the idea of corporate pensions that the older generations used to enjoy.

The Fair Tax provides the increased take home pay for a family to save for retirement and participate in Account #2 as well as extra take home pay for Health Care, Child Care, College Tuition and other Family needs.

We do not need to raise taxes we need to replace our income tax system to grow the economy and increase revenue. The Fair Tax is estimated to grow the economy over 10% in its first year and give every American Family a Raise.

Read more on the Tier 2 solution at http://tinyurl.com/5my69

Or Visit My Blog Tax Reform "Fair To All" http://fairtaxreform.blogspot.com/

PGL said...

Andrew:

Bush SORT OF pulled the plug on the Democrats have no plan spin with his statement about that "Democratic economist" Pozen and his plan. As noted at Angrybear, Pozen's plan is a Bush Lite plan and I suspect Pozen is not an economist. I do like what Tyler Cowen is suggesting v. what Bush is suggesting, but for reasons stated - I'm still in Max's camp as far as opposing using employment taxes to bail out the General Fund - which is the essense of the Bush plan. Personal accounts are just sweeteners for the massive shift in tax burden. When conservatives get around to admitting this - we can start a real conversation.

Cent21 said...

But Meril, Democrats can point out that a big tax increase wouldn't have been necessary 15 years from now if Republicans had just signed on to the Pay as you go rules put forth by Senators Chafee and Feingold, which Republicans blocked with 50 votes and with the Vice President voting not to pay as we go.

We won't see any serious spending cuts unless revenues are also on the table. Why cut spending when there's no real reason to hold spending down to the level of taxes you're willing to levy?

Seriously, I suspect Bush could possibly get a variation of Brad DeLong's proposal today passed, if he were willing to put solvency as the first priority and accept a voluntary addon account targeting lower income workers who don't currently participate in personal retirement plans.

But the problem is, Bush's idea of a "Democratic" reform is the plan Pozen developed for the commission Bush appointed him to. That still carves revenue out of traditional social security, and the middle class benefit cuts in Pozen's plan would eventually undermine the plan, if the transitional debt didn't.

Democrats don't have any chance of having a plan they'd favor pass the House and Senate.

It's actually rather bizarre for a party with majority control of the House, Senate, and the Presidency to ask the opposition party to give them a fig leaf of legitimacy to phase out a popular program.

fester said...
This comment has been removed by a blog administrator.
fester said...

I want to look at option #3 in which you believe that a compromise will allow the Democrats and Bush to split the difference on credit for a reform measure. Sounds good in theory, but given past history, why should the Democrats believe two things. 1) There are no poison pills in the conference committee report
2) Bush's word that he will split the difference on credit and not campaign against Democrats who supported him as good.

Just take a look at Homeland Security, take a look at the first large supplemental for Iraq, take a look at NCLB --- cooperation has not paid off for the Democrats politically --- why should they trust Bush especially when there is a long history of him being very good at opposing something until the last moment and then claiming credit for its passage (Homeland Security is the best example)

Mark Thoma said...

I think this is a difficult question. Here are my thoughts:

http://economistsview.blogspot.com/2005/03/heads-in-sand-or-winning-hand.html