full text of Wehner Social Security memo to GOP (N.B. "Carpe diem!"?) [View All]

[papau]

Memo on Social Security
January 5, 2005 7:24 p.m.

This is the full text of the memo from Peter Wehner, President
Bush's director of strategic initiatives, on the White House's plans
for Social Security reform:

From: Wehner, Peter H.

Subject: Some Thoughts on Social Security

I wanted to provide to you our latest thinking (not for attribution)
on Social Security reform.

I don't need to tell you that this will be one of the most important
conservative undertakings of modern times. If we succeed in
reforming Social Security, it will rank as one of the most
significant conservative governing achievements ever. The scope and
scale of this endeavor are hard to overestimate.

Let me tell you first what our plans are in terms of sequencing and
political strategy. We will focus on Social Security immediately in
this new year. Our strategy will probably include speeches early
this month to establish an important premise: the current system is
heading for an iceberg. The notion that younger workers will receive
anything like the benefits they have been promised is fiction,
unless significant reforms are undertaken. We need to establish in
the public mind a key fiscal fact: right now we are on an
unsustainable course. That reality needs to be seared into the
public consciousness; it is the pre-condition to authentic reform.

Given that, our aim is to introduce market reforms in Social
Security and make the system permanently solvent and sustainable.

We intend to pursue the first goal by using our will and energy
toward the creation of Personal Retirement Accounts. As you know,
our advocacy for personal accounts is tied to our commitment to an
Ownership Society -- one in which more people will own their health
care plans and have the confidence of owning a piece of their
retirement. Our goal is to provide a path to greater opportunity,
more freedom, and more control for individuals over their own lives.
That is what the personal account debate is fundamentally about --
and it is clearly the crucial new conservative idea in the history
of the Social Security debate.

Second, we're going to take a very close look at changing the way
benefits are calculated. As you probably know, under current law
benefits are calculated by a "wage index" -- but because wages grow
faster than inflation, so do Social Security benefits. If we don't
address this aspect of the current system, we'll face serious
economic risks.

It's worth noting that wage indexation was not part of the original
design of Social Security. The current method of wage indexation was
created in 1977, under (you guessed it) the Carter Administration.
Wage indexation makes it impossible to "grow our way" out of the
Social Security problem. If the economy grows faster and wages rise,
this produces more tax revenue. But the faster wage growth also
means that we owe more in Social Security benefits. This has
produced a never-ending cycle of higher tax burdens, even during
periods of robust economic growth. It is the classic case of the dog
chasing his tail around the tree; he can run faster and faster, and
never make any progress.

You may know that there is a small number of conservatives who
prefer to push only for investment accounts and make no effort to
adjust benefits -- therefore making no effort to address this
fundamental structural problem. In my judgment, that's a bad idea.
We simply cannot solve the Social Security problem with Personal
Retirement Accounts alone. If the goal is permanent solvency and
sustainability -- as we believe it should be --then Personal
Retirements Accounts, for all their virtues, are insufficient to
that task. And playing "kick the can" is simply not the credo of
this President. He wants to do what needs to be done for genuine
repair of Social Security.

If we duck our duty, it can have serious short-term economic
consequences. Here's why. If we borrow $1-2 trillion to cover
transition costs for personal savings accounts and make no changes
to wage indexing, we will have borrowed trillions and will still
confront more than $10 trillion in unfunded liabilities. This could
easily cause an economic chain-reaction: the markets go south,
interest rates go up, and the economy stalls out. To ignore the
structural fiscal issues -- to wholly ignore the matter of the
current system's benefit formula -- would be irresponsible.

Here's a startling fact: under current law, an average retiree in
2050 would be scheduled to receive close to 40 percent more (in real
terms) in benefits than an average retiree today -- and yet there
are no mechanisms in place to produce the revenue to pay out those
benefits. No one on this planet can tell you why a 25-year-old
person today is entitled to a 40 percent increase in Social Security
benefits (in real terms) compared to what a person retiring today
receives.

To meet those benefit levels, one option would be to raise the age
at which people receive benefits. If we followed the formula used
when Social Security was first created -- make the age at which you
receive Social Security benefits above the average age of mortality -
- we'd be looking at raising the benefit age to around 80. That
ain't gonna happen.

Another way to meet those benefit levels is through the traditional
Democrat/liberal way: higher taxation. According to the latest
report of the Social Security Trustees, the current system's benefit
formula would require some $10 trillion in tax increases over the
long term. We'd therefore need to raise the payroll tax almost 20
percent simply to provide wage-indexed benefit levels to those born
this year.

This will all sound familiar. In the past, the way Congress usually
addressed the built-in funding problem was by raising payroll taxes
(from 2 percent in 1937 to 12.4 percent today). In fact, Congress
has raised Social Security taxes more than 30 times -- but it has
never addressed the underlying problem. Avoiding the core issue by
raising taxes is not the modus operandi of this President.

The other key point, as you know, is that personal accounts, through
the miracle of compound interest, will provide workers with higher
retirement benefits than they are currently receiving from Social
Security.

At the end of the day, we want to promote both an ownership society
and advance the idea of limited government. It seems to me our plan
will do so; the plan of some others won't.

Let me add one other important point: we consider our Social
Security reform not simply an economic challenge, but a moral goal
and a moral good. We have a responsibility to fulfill the promise of
Social Security, not undermine it. And we have a duty to ensure that
we do not create an inter-generational conflict -- which is
precisely what will happen if the Social Security system is not
reformed. We need to retain strong ties between the generations,
which is of course a deeply conservative belief.

The debate about Social Security is going to be a monumental clash
of ideas -- and it's important for the conservative movement that we
win both the battle of ideas and the legislation that will give
those ideas life. The Democrat Party leadership, the AARP, and many
others will go after Social Security reform hammer and tongs. See
today's silly New York Times editorial (its only one for the day) as
one example. But Democrats and liberals are in a precarious
position; they are attempting to block reform to a system that
almost every serious-minded person concedes needs it. They are in a
position of arguing against modernizing a system created almost four
generations ago. Increasingly the Democrat Party is the party of
obstruction and opposition. It is the Party of the Past.

For the first time in six decades, the Social Security battle is one
we can win -- and in doing so, we can help transform the political
and philosophical landscape of the country. We have it within our
grasp to move away from dependency on government and toward giving
greater power and responsibility to individuals.

There are of course other important issues dealing with Social
Security; for now, though, I've covered quite enough ground. I
wanted to let you know where things stand. If you have any
questions, or if we can send you anything to clarify our plans and
respond to critics, just let me know. The President remains flexible
on tactics -- and rock-solid on the principles. But there's nothing
new there.

In one of his last public acts of an extraordinary public life, the
late Democratic Senator from New York, Daniel Patrick Moynihan, co-
chaired the President's Commission to Strengthen Social Security. In
the introduction of its report, Senator Moynihan (along with Richard
Parsons, his co-chair) wrote, "the time to include personal accounts
in such action has, indeed, arrived. The
details of such accounts are negotiable, but their need is clear....
Carpe diem!"

And so we shall.