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Cut Your Losses

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The slow, public death of President Bush's Social Security proposal validates the view that the 2004 election was not a transformational one, and that any mandate that Bush received from it was meager indeed. The 2004 election in a nutshell: Thanks to his fabulous campaign organization, Bush, whose stature was significantly enhanced by his response to the 9/11 terrorist attacks, beat a marginal candidate with a mediocre campaign. No more, no less.

The question now is whether Bush will use the political sophistication he so ably demonstrated during the campaign and pivot to an alternative Social Security proposal, one that has a chance of passing and that would not hurt GOP hopes of maintaining its current edge on Capitol Hill. His suggestion that a portion of Social Security payroll taxes be carved out to create private retirement accounts -- which could be at least partially invested in the stock market -- is going over like a lead balloon.

The president's proposal received, at best, a tepid reception when aired at congressional town meetings over the Presidents' Day congressional recess. Compounding Bush's problems, results of this past week's CNN/USA Today/Gallup Poll indicated that only a third of Americans approve of his approach to Social Security. In short, "Plan A" is dead.

While Americans like the concept of personal, self-directed accounts, they treasure the guaranteed-benefit aspect of Social Security and seem quite averse to introducing an element of risk into their Social Security benefits. Five years ago, before the stock market bubble burst, this proposal might have been received more favorably, but subsequent ups and downs in the markets have made the public wary of it. Furthermore, the Bush administration suggestion that benefits be linked to the rise in prices rather than to wages (which tend to grow more rapidly) has hurt the proposal's chances. You can paint a pretty face on a pig, but a pig is a pig, and a benefit cut is a benefit cut.

Also undermining Bush's proposal is the simple fact that the president has neither suggested anything that would put Social Security on a path toward long-term solvency nor addressed the far more pressing problem that Medicare is on track to go belly-up in 2019 -- 23 years sooner than Bush says Social Security would be unable to cover its obligations. The original objective of "saving Social Security" has been undermined by Bush's zeal to fundamentally change one of the last New Deal programs.

Faced with opposition to his original plan, will Bush switch to plugging Social Security's financial holes and to paying for personal accounts through an "add-on" instead of a "carve-out"? An add-on would encourage workers to supplement their Social Security benefits, by offering them tax incentives to save more for retirement -- effectively supersizing Roth individual retirement accounts. IRAs would then regain the popularity they had in the early 1980s.

Such switcheroos can work. Recall Bush's initial post-9/11 opposition to creation of a Department of Homeland Security after it was proposed by Sen. Joe Lieberman, D-Conn., and others. Bush made an elegant 180-degree turn on setting up a separate Cabinet department, then beat congressional Democrats' brains in for hampering his efforts to speedily set up the department when they insisted that its employees have the same job protections as other federal workers. If you've forgotten how much that cost Democrats, just ask ex-Sen. Max Cleland of Georgia, who lost his seat over it.

When a change in position is executed well, many observers will forget that your original position was different. But such shifts can't happen late in the process if they are to be effective. For Bush, the clock is ticking on overhauling Social Security, in part because of the Senate's looming confrontation over judicial nominees. The "nuclear-option" trigger could be pulled soon, because Senate Republicans are under pressure from their party's base to get Bush's road-blocked judicial nominees confirmed. If Republicans opt to rule out the use of filibusters against judicial nominations, it's likely that the Senate will effectively be shut down for quite a while. If that happens, it's anyone's guess what the fallout would be.

So, whether Bush switches directions on Social Security and does so before the Senate blows up, or waits until after that happens, seems pretty important now. We'll soon see whether Bush acts quickly enough to have a good chance of pulling off the magic trick that he needs at this point.

 
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