What the Republican divide over Social Security means for the future of entitlement reform. Our November cover story, “It’s GOP Gut-Check Time.”
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Once in office, Reagan did propose some cuts to Social Security and Medicare, including a freeze in cost-of-living adjustments in 1985. Many political analysts argue this helped cost Republicans control of the Senate in 1986. But he didn’t try very hard to get them passed. When Social Security faced the first of its many crises in long-term solvency in the early 1980s, Reagan went along with a conventional patchwork approach that emphasized payroll tax increases over any systemic reforms. He won reelection by almost as big a margin as Lyndon Johnson beat Goldwater 20 years before (in fact, Reagan did better than LBJ in the Electoral College).
Even the Reaganized Republican Party generally exempted Social Security, along with military spending, from budget cuts. This did not stop the Democrats from perennially attacking the GOP on entitlements, butit did prevent most Republican presidents and Congresses from tackling serious reform. For good reason: Franklin D. Roosevelt crowed that “no damn politician” would ever be able to touch Social Security. It became known as the “Third Rail” of American politics.
After the 1994 Republican congressional takeover, Newt Gingrich’s Republican revolutionaries went along with the promise to never cut Social Security benefits. But they did propose a reduction in the growth of Medicare spending. Democrats quickly pounced. Gingrich was said to want to let Medicare “wither on the vine” (an out of context quote of a characteristically bombastic Gingrich statement). Democrats pointed out the $270 billion the Republicans sought in Medicare savings was awfully close to the $245 billion they had proposed in tax cuts.
The narrative became that Republicans wanted to cut Medicare to pay for tax cuts — for the wealthy, natch — rather than to shore up the program’s solvency. Bill Clinton won reelection in 1996 as a protector of Social Security, Medicare, Medicaid, education, and the environment. In his second term, a bipartisan commission entertained some sound ideas for reforming Social Securityand Medicare. But there remained a bipartisan reluctance to tackle the issue, even though the economy was booming, the baby boomers were still in their peak earning years, and the political conditions were theoretically in place for reform.
In 1999, however, the Clinton administration did come up with a Social Security plan of sorts. The proposal was to redirect two-thirds of the expected budget surplus over the next 15 years — an estimated $2.7 trillion — to the Social Security trust fund. To increase the rate of return, Clinton also proposed investing 20 percent of this additional money in the stock market. Stock market holdings were to be limited to less than 14.6 percent of the trust fund’s holdings.
GEORGE W. BUSH, the frontrunner for the Republican presidential nomination, had a bolder free-market reform plan. He wanted to partially transform Social Security into personal investment accounts, letting individuals rather than government reap the market returns. In exchange for forgoing some traditional benefits, younger workers would be able to divert some of their payroll tax contributions into personal accounts which, unlike their Social Security taxes, they would actually own.
Bush was attacked from both the left and the right, as Democrats demagogued and Republican entitlements schizophrenia manifested itself. Gary Bauer, a pro-family activist then running against Bush for the GOP nomination, said that senior citizens “ought to fear” any “privatization plans that say that current workers can all withdraw their current payments.”
“It’s the current payments that’s paying the checks of current retirees,” Bauer continued. “I will preserve the Social Security system. It’s worked well and it’s served the elderly in this country.” (Bauer favored an immediate 20 percent cut in payroll taxes in exchange for a 20 percent cut in benefits.)
John McCain was more mixed. He essentially sided with Al Gore on the “lock box” and backed putting more of the projected surpluses into the Social Security trust fund. But he also endorsed the idea of letting younger workers have personal accounts. ”The only way to increase the yield on Social Security dollars is by allowing workers to make investment decisions for themselves,” McCain remarked in June 1999. Steve Forbes also supported personal accounts, though his plan would have allowed workers the choice of remaining in the current system.
It seemed as if the schizophrenic Republicans had finally crossed the Rubicon on entitlements. Bush won the nomination and the 2000 election against a Democratic opponent who pounded away at personal accounts as “stock market roulette,” “gambling with retirement,” and, that perennial Gore favorite, “a risky scheme.” John Kerry also hit Bush on personal accounts to little avail in 2004. After being reelected with a majority of the popular vote, Bush was ready to start out his second term with a detailed partial privatization plan for Social Security.
Then the old Republican double-mindedness on entitlements once again reared its ugly heads. Social conservative leaders — including some who had shared Bauer’s skepticism of Bush’s reform ideas five years ago — protested that the president should instead be spending his vaunted political capital on the social issues helped him win a second term. Even Democrats from red states felt there was little political risk in opposing Bush on Social Security, while swing state Republicans were unconvinced it was time to grab the third rail.
SINCE BUSH’S Social Security reform failure, the GOP has returned to being a house divided on entitlements. Republicans aggressively attacked Obama for trying to cut Medicare in order to pay for his own health care reform law despite warnings such tactics would undermine their message on entitlement reform later. GOP leaders and strategists offered several defenses for their move.
Republicans pointed out that Obama was not addressing Medicare’s unfunded liabilities, because he was double-counting the savings and actually using them to pay for a brand new entitlement. They noted that Obama’s Medicare cuts would be achieved through reducing payments to doctors, thereby increasing cost-shifting, and rationing care rather than any fundamental reform. Republicans also argued that Obama wasn’t sheltering current beneficiaries from his cuts.
Privately, many Republicans acknowledged that they were willing to use any means necessary to defeat Obamacare. The legislation was a permanent, unconstitutional increase in the size, cost, and power of the federal government. Republicans argued that its cost-savings assumptions were wrong and it was likely to make the existing entitlements crisis much worse. Finally, Medicare was already an established fact while there was still a chance of stopping Obamacare.
Obamacare passed. But Republicans did manage to capitalize on older voters’ anti-Obamacare backlash in the midterm elections. The GOP won the 65-and-over vote by an eye-popping 21 points in 2010, after splitting this bloc evenly in 2006. That’s 13 points better than Republicans did with seniors in the 2008 presidential race with a senior citizen at the top of their ticket. Elderly voters swung important races. In New Hampshire, Republican Kelly Ayotte won them by 33 percentage points. In the race for Obama’s old Illinois Senate seat, Republican Mark Kirk won older voters by 22 points. Even Christine O’Donnell, who went down to defeat in Delaware, carried this group by 11 points.
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