Bill Clinton's Social Security Options

Article excerpt


In a recent editorial, The Washington Times reminded its readers that then-President Clinton, in a major policy speech delivered in February 1998 at Georgetown University, warned about "the looming fiscal crisis in Social Security" that "affects every generation." Today, congressional Democrats are downplaying Mr. Clinton's "looming fiscal crisis" in an effort to sabotage any reform effort that might include individual (or personal) retirement accounts.

Mr. Clinton had good reason to be worried about Social Security's long-term future. When he delivered his Georgetown speech, he had been in office for more than five years, during which time he labored over the federal budget and the long-term consequences of fiscal policy. In addition, before the 1998 speech, three national panels had already been commissioned during the Clinton administration to review Social Security reform options: the Bipartisan Commission on Entitlement and Tax Reform (1993-1995); the 1994-1996 Advisory Council on Social Security; and the 1997-1998 National Commission on Retirement Policy.

All three panels offered long-term reform plans that included individual accounts. Moreover, a policy paper presented in June 2001 and published by the National Bureau of Economic Research the following September revealed that the Clinton administration itself intensively analyzed such accounts as part of a long-term solution to "the looming fiscal crisis." Indeed, within days of Mr. Clinton's Georgetown speech, "the administration launched a systematic process to develop a Social Security reform plan," according to the very revealing 2001 paper - "Fiscal Policy and Social Security Policy During the 1990s" - delivered at a Harvard conference. The paper was written by three former senior Clinton administration policy-makers: Douglas Elmendorf (deputy assistant secretary of the treasury), Jeffrey Liebman (special assistant to the president for economic policy) and David Wilcox (assistant secretary of the treasury).

The authors respectfully noted that "[t]he administration's economic team was also aware of a significant group within the Democratic Party that downplayed the need for Social Security reform." Then, they proceeded to demolish the Democratic group's arguments, which today are being repeated by pro-status quo Democrats.

While the administration's high-level working group was reviewing the options, the rapidly growing economy and the soaring stock market were on the verge of turning longtime budget deficits into budget surpluses, which were soon to be projected for years into the future. Admittedly, the imminence of these surpluses stoked the president's interest in exploiting the superior returns offered by stock and bond investments. At the same time, however, "the president also made clear that all reform options other than an increase in the payroll tax should be on the table." To this end, "much of the effort ultimately was directed toward devising ways of bridging the gap between the defenders of the current defined-benefit system and advocates of individual accounts."

Focusing on (1) administrative feasibility and costs, (2) portfolio market risk, (3) political interference in markets and corporate governance and (4) redistribution, the working group rigorously studied the option of investments in private financial assets. It concluded that "such a system could be run at an annual cost of $20 to $30 per account. …