Category: social security

I took the Thomas Jefferson option for the State of the Union Address and just read the printed word. I had three reactions to the material on Social Security:

1) With the failure to move the issue forward last year, I thought the issue would be difficult to handle rhetorically. See Jane Galt's fine analysis of how the President managed to pull it off:

[T]here were the Democrats, clapping joyously at the news that they'd voted down Social Security reform. They looked like adolescents mocking authority. Memo to Dems: if the American voter wanted sullen, rebellious adolescents in Congress, they would have sent their own, if for no other reason than to get them out of the basement. George Bush let them applaud their intransigence for a while, then said, "Now we still have a giant entitlement problem." This made the Dems look foolish enough. But, in keeping with the role of teen rebel who is not paying close attention to teacher, they kept applauding. Brilliant! Why didn't those Machiavellian Republicans think of positioning themselves as the party that's glad we have a gigantic, intractable entitlement problem? About halfway through the moment, some of the brighter senators seemed to realise that they were applauding something that they oughtn't to be. But by then, they apparently figured it was too late to back down, and the best course of action was to bull through as if they'd intended all along to celebrate multi-trillion dollar budget shortfalls.

(Her observations on the word "responsible," as in responsible fiscal policy, are also quite accurate.)

2) I share Kash's skepticism that what we need is another Commission on entitlements. He conjures up the image of Ross Perot in the 1992 Presidential debates and then goes through the trouble of listing many of the recent government publications that analyze the likely impact of the Baby Boomers and others on the federal budget. The part that we need is the bipartisan. I suppose that means a Commission these days, since the other entity that is supposed to be bipartisan--Congress--doesn't seem to act that way.

3) Kash concludes his post with the question:

When will it actually be time to put forward some new solutions to these well-documented problems?

If you want ways to address Social Security's challenges that are not narrowly partisan, then by all means, start here.

Perhaps more later on the other elements of the speech.

Feedback on the Nonpartisan plan has been very thoughtful in general. I want to use this post to pick up on some themes in the comments on the previous two and some issues raised elsewhere in the blogosphere.

1) Mandatory Annuitization

I view this as an important piece of the plan. The explicit purpose of Social Security is to provide insurance against outliving your assets in retirement. An annuity is the appropriate payout vehicle for this purpose. That's why the plan insists on full annuitization by age 68 in the form of joint and survivor annuities indexed to inflation. We allow for 10-year certain annuities. We have nothing against bequests--we just don't think they are fundamental to Social Security.

2) Our Fiscal Priorities

Several folks have commented that the costs of health care (Medicare and Medicaid, and presumably for everyone else too) and the General Fund deficit are more important than Social Security. I certainly agree with the first, and I don't want to minimize the importance of the second, even if I were to argue that it is not as critical as Social Security. So the question becomes, "Do you solve the easiest problem first, or do you solve the largest problem first?" My answer is that if I could solve the largest problem first, I would. I don't think I can do it, at least not in a way that would gain political traction. See the critique here, and some replies here and here.

3) Around the Blogosphere

Nice mentions of the plan over at Asymmetrical Information (which sent a ton of traffic), The Sacramento Bee's blog (ditto), EconLog, Macroblog, Joe's Dartblog, News and Analysis, Outside the Beltway, and Just One Minute. There were some questions raised in two places that I'd like to address:

a) PGL over at AngryBear writes:

The second comment draws from “no transfers from general revenues to achieve sustainable solvency”. Is the converse part of their plan. My main concern with the Bush Administration (beyond their brazen dishonesty enabled by the Cato crowd) is that their real agenda is to transfer funds from the Social Security Trust Fund to reduce the massive long-run General Fund insolvency issue – what I’ve dubbed a backdoor employment tax increase. I hope Dr. Samwick joins me in also saying that this type of transfer should be off the table.

It's way off of my table. It's not in the kitchen. It's not in the house. We can't even see it from the porch. For example, I have been very disappointed at the continued use of the unified budget (conditional on Social Security being in surplus) as the target for policy. I posted this a year ago. I also couldn't follow the money on the GROW accounts proposal in June. I don't share PGL's view of the "real agenda," but I do believe that we are unlikely to get much budgetary improvement until we hold the federal government to either of two fairly easy to specify targets: a balanced on-budget deficit over the business cycle, or no upward trend in the debt/GDP ratio (including anything held by Social Security).

b) Over at Economist's View, Mark Thoma wants more information. Go read his post and come back. I'll address his questions in order, with my paraphrasing:

i. Is it really a problem? Yes, I think so. The problem is mainly one of demographics. Absent a pandemic that selectively wipes out the Baby Boomers but not their children or an immediate end to contraception, I don't see how the demographic burden doesn't increase by enough to make this a problem. In fact, I share the view that the likely improvements in mortality are understated in the projections. I also believe that the actuaries are projecting too little productivity growth in the long term (which would improve the system's finances), but I don't think we can honestly project that we will grow our way out of this.

ii. Does increased life expectancy translate into increased working years? I am sympathetic to the point that the answer is "not necessarily." I think that any reform that lowers the benefits to retirees while trying to hold disabled beneficiaries harmless has to expect an increase in the number of folks applying for and receiving disability benefits. I would appreciate any links to sources that can quantify the answer to this question.

iii. Is a program for the poor destined to be a poor program? This worried Jeff to no end in our discussions. Out of respect to his concerns, the plan contains more benefits at the higher end of the earning distribution than I would have liked. The bottom line is that the changes made have to be progressive--I would have preferred more of that to be in the form of benefit reductions than tax increases. I think Jeff would have preferred the opposite. Poor Maya sometimes couldn't figure out which of us was which. That's what makes a compromise. You can see the actuaries' projections here (last 4 pages).

iv. Why not hold the investment risk centrally? Yes, the answer is perhaps in the realm of the philosophical. I'm not going to allow the federal government this much ownership of private assets. I recognize that this is an accounting cost that we have to pay. It is worth every dime, conditional on the rest of the plan.

v. How can you trust the current federal government to do this? I don't share the underlying skepticism. The main point of the exercise was to encourage a coalition to form from the center and move progressively outward in both directions. The lack of trust is, in my view, between the midpoints of the two parties, which are in fact very far apart. But we are willing to stake the success of the plan on the presumption that there are a lot of people in the center who don't distrust each other, or those who would be added to the coalition as it moves out from the center, and who want to see some judicious reform enacted. If we guessed wrong, then the plan goes nowhere.

Thanks for all of your feedback and comments.

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Fortunately, he's not packing any heat in "'Radical Centrism' or Just Dumb?" Let's go through his assertions in order:

Without getting into all the details of the proposal, I'll just note that it requires workers to pay an additional 1.5 percent in payroll taxes while raising the ceiling on earned income subject to the payroll tax. Those two changes alone would be much more than enough to cover Social Security's projected long-term shortfall.

In the context in which (I think) he's making the claims, that is correct. The 75-year actuarial deficit is 1.92 percent of taxable payroll. The actuaries' evaluation of our plan calculates the impact of raising the ceiling to be equivalent to an increase in the payroll tax of 1.00 percent. Add that to the 1.50 PRA contribution, and you get 2.50 percent. Continuing:

But the authors go beyond that to reduce guaranteed benefits substantially and hope that the new accounts financed by the higher and diverted taxes will be more than enough to make up the difference.

The reduction in benefits via the benefit formula is equivalent to 2.08 percent of taxable payroll, and the increase in the retirement age is equivalent to 0.62 percent of taxable payroll. As an aside, most people would do a little arithmetic and see that, over the first 75 years, our plan is 2.5 percent revenue increases and 2.7 percent benefit reductions and think of that as balanced. Those who actually took the time to "get into the details" of the plan would realize that while the revenue increases alone are enough to achieve what the actuaries define as "long-term solvency" (a trust fund ratio of 1.00 at the end of the 75-year period), we need more to achieve our target of "sustainable solvency" (long-term solvency, plus a growing trust fund at the end of the projection period), but I don't want to get bogged down in that here. I discuss it somewhat here.

The word "hope" is also misplaced here. Anyone who wants to know what happens to the retirement benefits workers in different cohorts and different earnings levels can go to Tables B1-B1c of the actuaries' evaluation and see for themselves. (More of those pesky details.) As a quick summary, for a single beneficiary who was a career low earner in the period after all changes are phased in, benefits are reduced to 62 percent of present law benefits, and PRAs are projected add 23 percent if invested only in Treasuries and 36 percent if invested in a higher-risk, higher-return portfolio consisting of half stocks, a quarter Treasuries, and a quarter corporate bonds.

The post then asks:

What's the point of introducing market risk if raising the taxes alone would address Social Security's shortfall? The authors say that walling off the funds in the accounts from the rest of the government (now in the form of the existing trust funds) would "increase the likelihood that they would contribute to national saving."

There are two answers here. The first is that it is reasonable to allow people to make choices to pursue higher returns with some additional risk if they are being required to put new money into the system. The second and more important one is that people on the political right, myself included, will not agree to support a plan in which new money is thrown at the old system without any change in the way it is allocated. And the reason is the one given about the impact of Social Security surpluses on the rest of the government budget.

Is the conjecture here that it will not increase the likelihood, that it would make no difference to the government's budget policy if every new dollar of revenue brought into the system were matched by an outflow to the accounts? That's easy to dispute. During the last campaign, the President said he wanted to cut the budget deficit in half in 5 years. As I note in this post, that included not just the level but the growth in the Social Security surplus over that time period. Excluding Social Security, that target was equivalent to only cutting the deficit by a quarter over that time period. If Mr. Anrig would like to expand the off-budget surplus to enable the President (and, in my view, all presidents) to set targets for the on-budget deficit with even less gusto, that's his business, but Jeff and Maya and I are having none of it.

Now it gets interesting. He continues:

Hmmm, that dubious connection sounds like something that Martin Feldstein would say. And wouldn't you know it, two of the three authors of the New America report - Andrew Samwick and Jeffrey Liebman - had previously co-authored privatization plans with Feldstein. Dr. Feldstein, of course, is the supply sider whose years of privatization work essentially laid in ruins after the past year's analysis of similar plans by the Congressional Budget Office, the Center on Budget and Policy Priorities, and even the Office of Management and Budget.

It must be that the house specialty in the TPMCafe today was a cocktail of ad hominem and (presumed) guilt by association. And when a patron has had too much, it must be that he can't link straight, because I certainly would expect to see some documentation to support the innuendo and assertions running through this nonsense. If you want to know what Feldstein thinks about entitlement reform, just read his AEA Presidential address. If you want to know what Liebman thinks about Social Security reform, do the heavy lifting required to Google him and read his cover story in Harvard Magazine. And, you might say, I'm an open blog on the issue. None of us expect you to agree with everything we write.

Let's keep going:

In any case, now the right can seize on the opportunity provided by New America to say that even a vibrant new progressive institution supports privatization. Of course, the conservative groups will never buy into a payroll tax increase. But that doesn't matter to them. New America has dutifully served their purposes.

I think it is probably true that some on the political right will do that. (And perhaps some on the political left will distort what it means when I am quoted making critical remarks about the current administration's policies.) And when I see it happening, it is my job, as the right-leaning co-author of the plan, to set the record straight. Mr. Anrig is free to e-mail me and let me know if I'm falling down on the job of taking on those on my right flank. And here's the big finish:

At the outset of the New America proposal, the authors write, "the three of us - former aides to President Clinton, Senator McCain, and President Bush - did an experiment to see if we could develop a reform plan that we all could support." Please. All three (New America's Maya MacGuineas is the third) have long supported privatization. That's the kind of disingenuousness that characterizes today's conservative movement. An institution that calls itself progressive has no business behaving the same way.

People can certainly disagree about how difficult it should have been for the three of us, given our backgrounds, to come up with the plan. (Read some of Maya's earlier views here.) I would hasten to add that the plan is about much more than just the inclusion of personal accounts. I suppose that if we were all a bunch of conservatives, then there would be some other plan here that resembles ours. I'm not seeing it. Pozen's ideas are probably closest. And he's a Democrat.

I'll conclude by doing something that always gets me into trouble. I'm going to give advice to someone to the left of me ideologically. It has three parts:

First, if you ever have a hope of being part of the governing coalition in this country, I'm the sort of person right-of-center that you need to persuade to join that coalition. If you bridge that gap and hold your base, then you would almost surely have enough people to constitute a majority. You do yourselves no favors with commentary like this. Read the plan. Make suggestions. Be a part of the solution.

Second, if you hope to be taken seriously on anything having to do with fiscal policy, don't take pot shots at people like Maya, who has devoted her professional life to trying to improve the clarity and quality of budget policy in Washington. Don't dump on New America because Ted Halstead is smart enough to keep a range of perspectives among his distinguished group of fellows. The interactions among the group make all of them better. This sort of behavior makes you look--your words--just dumb.

Third, if you fancy yourself a liberal, and if your coalition doesn't extend far enough to the right to include Jeff Liebman, then you have relegated yourself to political irrelevance. Enjoy!

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Along with Jeff Liebman of Harvard University and Maya MacGuineas of the New America Foundation, I am pleased to announce the "Nonpartisan Social Security Reform Plan." Jeff was a Special Assistant to President Clinton's National Economic Council, where he worked on Social Security, and Maya was a Social Security adviser to Senator McCain's 2000 presidential campaign. Combined with my experience on the staff of the CEA in the Bush administration, we cover the political spectrum of recent years.

We've all spent plenty of time worrying about the looming fiscal crisis associated with the demographic shift toward an aging population, of which Social Security is the tip of the iceberg. Push finally came to shove, and we bound ourselves together via months of conference calls, and this is the plan that emerged. It's not what any one of us would have come up with on our own, but those sorts of plans never become legislation anyway.

What is unique about the plan is that it is designed around the broad areas of likely compromise across the political landscape on how to restore solvency to the system. What makes the plan important is that the Office of the Chief Actuary has evaluated it and certified that it would "easily satisfy the criteria for attaining sustainable solvency."

The plan contains four primary elements: a gradual reduction in future benefits; an increase in the payroll tax cap; an increase in the retirement age; and the establishment of personal retirement accounts. The plan puts great emphasis on fiscal responsibility – there are no transfers from general revenues to achieve sustainable solvency. Specifically:

1) Pay-as-you-go benefits would be gradually reduced to keep the costs of the traditional system to what can be afforded by the 12.4 percent payroll tax. The cuts are structured such that cuts are larger for high earners than for low earners.

2) The plan would establish mandatory personal retirement accounts (PRA) in the amount of 3 percent of taxable payroll. The accounts would be funded by a combination of diverting 1.5 percent of taxable payroll from the Social Security trust fund and requiring workers to contribute an additional 1.5 percent of payroll into their PRAs.

3) The funds diverted from the trust fund would be replaced, once the Social Security surplus was not adequate, by raising the cap on earnings subject to the Social Security payroll tax so that 90 percent of earnings were taxed. Workers would receive no incremental benefits for paying these additional taxes.

4) The plan would gradually increase the normal retirement age (currently scheduled to reach 67 in 2017) to 68 and the earliest age at which retirees could collect Social Security benefits from its current 62 to 65. People would be able to tap into their PRA assets beginning at age 62.

5) In order to minimize risks and administrative costs, accounts would be tightly regulated and full annuitization of account balances would be required.

6) Total replacement rates from the remaining traditional benefits and the new PRAs are comparable for most workers to those promised but currently underfunded in present law.

I invite your comments and questions on the plan, and I will be blogging more about the plan in the days and weeks to come. It was a fascinating experiment--we were trying to walk the very thin line between compromising our principles, which serves no one, and the principle of compromise, which is essential to moving public policy forward. It is a plan that respects political differences but not entrenched political interests. We believe that we have staked out the center of the political spectrum--the challenge now is to capture enough of the people just left and right of center to build the necessary coalition to see it through.

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Like Mark Thoma and Brad DeLong, I am left scratching my head after reading Kevin Hassett's column in Bloomberg about the "death" of Social Security reform. I'll focus on this passage:

Until two weeks ago, Social Security reform was sort of dead. But now it seems to be all dead. The breakdown occurred when the administration backed away from a proposal making its way through the House of Representatives that would have introduced personal accounts without specifically restoring solvency to the system.

Ben Bernanke, chairman of President George W. Bush's Council of Economic Advisers, publicly signaled the White House's displeasure with such an approach.
Asked if restoring solvency was an inviolable condition, Bernanke said, "Yes, I think the president will insist on maintaining the long-term solvency of the Social Security system.''

The word from the other side of town, up on Capitol Hill, is that this signal from the president sucked the remaining life out of the House measure. There appears to be nothing left for even Miracle Max to work with.

The Administration should have backed away from a plan that would introduce personal accounts without specifically restoring solvency. From the outset (e.g. the President's 2001 Commission) personal accounts have been the sugar to make the medicine go down. The medicine is restoring solvency. And we particularly applaud Ben Bernanke for making it clear that taking the medicine is something to insist on. If that sucked the life out of the House measure, so be it. Nothing prevents them from starting over and making improvements.

Let's hope they do, or that the President puts enough specificity on his proposal so that it can be scored by the Chief Actuary at SSA and be used as the basis for legislation.

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We may actually have some real leadership on Social Security coming from the Senate. Look at the bullet Senator Bennett bit last week. Here's the description, with his motivation for proceeding this way:

The current lack of consensus in Congress concerning Personal Accounts should not be allowed to stand in the way of essential legislation to address Social Security's chronic solvency problem, which will only become more acute and intractable in the absence of timely action. Therefore, in an attempt to move the political process forward to start dealing today with what will be unavoidable tomorrow, Senator Bennett has announced that he will be introducing two separate pieces of legislation. He is seeking both Democratic and Republican senators to join him in all or part of this effort.

Specifically, Senator Bennett will introduce one bill that addresses only the solvency problem and does not increase the payroll tax rate or expand the base of earnings subject to Social Security taxes. The senator will also introduce a second bill to enhance the income security of future retirees by allowing the creation of "Carve In" Personal Accounts and revising existing pension laws to encourage higher levels of personal retirement savings in employer-sponsored pension plans.

His initiative met with support from the Washington Post editorial page, apart from its reliance exclusively on restoring solvency through the benefit side. In particular, the solvency part of the reform is designed to:

1. Implement a form of "progressive indexing" that reduces the generosity of the future benefit formula disproportionately at higher lifetime earnings levels.
2. Accelerate the increase of the Normal Retirement Age to 67 and periodically have them adjusted for future increases in life expectancy.
3. Protect the benefits of disabled workers during the period before they reach the Normal Retirement Age, after which their benefit reductions would be prorated by the proportion of time that they were disabled.

I haven't seen the Chief Actuary's memorandum yet (it would be here), but assuming that these measures are enough to restore solvency, this is my new favorite starting point for reform, of all the suggestions that have come out of Washington. (A column by David Broder in Sunday's Washington Post claims that the actuaries have told Bennett that the plan would solve 90 percent of the Social Security deficit. It's not clear if that's 75 years or the infinite horizon.) It is not too dissimilar to my preferred reform.

In separate legislation, Bennett plans to introduce personal accounts that allow workers to divert 2 percentage points of their payroll tax to personal accounts if they put in the equivalent amount out-of-pocket. The diverted revenues would offset future Social Security benefits, in the same way that other personal account contribution plans have specified. This seems like a reasonable compromise on the accounts. In particular, it recognizes that, if less money will be coming from the traditional Social Security benefits relative to current law, then workers ought to be encouraged to save more on their own and the government might facilitate that additional saving with a simple personal account option. Other areas of compromise will likely come in the form of tax increases versus benefit reductions in the restoring of solvency.

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A group of Republicans from the Ways and Means Subcommittee on Social Security (Chairman McCrery and Representatives Johnson, Shaw, and Ryan), joined by Senators Sununu and DeMint, have offered a proposal to do ... something ... with the Social Security surplus. Here's the press release. Here's the accompanying summary. Here's a page that will have the video from C-SPAN for a while. Here's a valiant attempt by the New York Times to make sense of this.

Let's start with the summary. It begins with three principles:

1. Social Security taxes should only be used for Social Security.
2. The Social Security surplus should not be used to fund other government programs.
3. The surplus should not be used to mask the true size of the national deficit.

I don't know if we have three unique principles here, but we get the idea. The presence of surpluses in the Social Security system should not facilitate higher expenditures elsewhere in the government's budget. One way to do that would be to proactively announce and adhere to a policy that balances the budget--measured excluding the Social Security surplus--over the business cycle. I noted this in my testimony to the Subcommittee on Tuesday.

This proposal doesn't seem to go that far. Instead, it requires that all Social Security surpluses be used to fund accounts invested in Treasuries. Here's where my confusion comes in. It cannot simultaneously be the case that:

1. Actual money goes into these accounts;
2. The trajectory of the Trust Fund is not lowered;
3. The reported budget deficit is not increased; and
4. Government expenditures are not lowered.

The hope is the #4 is the one that won't hold--government expenditures should fall. This crew needs to show me how they expect #4 not to happen before I will believe the other 3 will happen. If they can, I will applaud very loudly.

But I remain confused about the rollout of this plan. For example, about 15 minutes into the press conference, a reporter asks McCrery (the key question of) how he will fund the programs that are now being funded by the Social Security surplus once the SS surplus is channeled to these accounts. He gives a non-answer and then says that "there is no change in the deficit whatsoever as a result of this legislation" but that "there will be an increase in the debt." That seems like a gimmick to get around #3 above.

I see that I am not alone in my confusion--see Mark Thoma and William Polley in response to DeMint's version of this proposal.

If anyone working at the Subcommittee would like to explain what I am missing, I would be happy to post a follow-up.

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Today I had the opportunity to testify before the Social Security Subcommittee of the House Ways and Means Committee. Here are the list of witnesses, the hearing advisory, and my written testimony. I appreciated the opportunity--my last testimony to a Congressional committee about Social Security was over 6 years ago.

It is not clear that we accomplished much through this hearing. I got no indication from the Representatives that they would be looking to get a bipartisan bill through their Committee. I hope that I'm wrong.

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When I read this column by Gene Sperling over at Brad DeLong's site, I did a double-take when I got to the last sentence in this part:

What non-political reason, I am often asked, could there be for someone like myself who supports Universal 401(k)s outside of Social Security to so stubbornly refuse to even consider private accounts within Social Security?

The answer is twofold. First, Social Security is simply the wrong vehicle for pushing the worthy and important goal of increasing ownership and savings among working Americans. In our three-legged retirement system -- which includes market-sensitive private savings, home equity and pensions -- Social Security is the only leg free of market and economic risk.

Did he just write that Social Security is free of economic risk? That's clearly not true, even if all benefits scheduled in current law are eventually paid. The amount I get from Social Security will rise or fall with the growth of the average wage in the economy (literally, the average wage in OASDI covered employment) over the rest of my career. This is obviously a growth rate that is subject to economic risk. And it is not likely that all of the benefits scheduled in current law will eventually be paid--the extent to which they are likely to be cut depends on how well the economy does, since that helps determine how much revenue there will be to pay benefits. Victor over at the Dead Parrot Society has two excellent posts showing the fallacy of Sperling's statement. The first is "Risk in the Current Social Security System" and the second is "Here We Go Again."

I think it is kind of ironic for Gene to be overstating the security of the current system in a post where he goes on to say:

That is why those of us who support new investment incentives like Universal 401(k)s should be the ones most adamant about the importance of keeping the Social Security leg of our retirement system completely risk-free.

The second substantive rationale for a hard "no'' on privatization is that virtually every private-account plan is designed to make Americans undervalue the social-insurance benefits of Social Security and overvalue their private accounts.

But I don't want to be too hasty to judge. I don't know Gene, and he didn't actually write anything that would be at odds with, say, this plan. I'd give up personal accounts if he'd give up tax increases--maybe there is room for compromise. And his sin is overstatement more than anything else--there is both less risk and less return in a system tied to the growth in average covered wages than there is in a system tied to financial market returns. The risk is just not zero. This is certainly not as bad a misrepresentation as suggesting that the bonds in the Trust Fund have no value.

But I wonder what the strategy is for Sperling, following similar advice given by Robert Rubin a week earlier, to admonish the elected Democrats in Congress not to engage in the policy process. Here's an interesting excerpt from the Hill News, covering Rubin's speech to Democrats:

“Putting out a Democrat plan on Social Security would be a horrible mistake because right now it’s the president’s principles against our principles,” Rubin said, according to a Democratic leadership aide. The aide added that Rubin told his party colleagues that it would be hard to win a battle of specifics.

You don't want to put your principles up against the other side, and you don't think you could win a battle of specifics? And your compelling reason for the American electorate to return you to office is what?

I wonder what future electoral success the Democrats are contemplating that would allow them a better shot at restoring solvency to Social Security than they would get by engaging today. Suppose that they win control of both houses of Congress in 2006. They would then have more bargaining power with a President intent on legacy-building in Social Security. But that seems like a slim possibility. Suppose that, by 2008, they have control of both houses of Congress and win the Presidency. Even then, Democratic majorities in Congress would be slim, and Republicans would have as much bargaining power as the Democrats have now. So compromise is inevitable if any reform is to get done, and that compromise is likely to include personal accounts.

So why not engage now, and look for a deal that included these three elements:

• Accepting personal accounts, but getting the President to agree to smaller accounts (like 3% up to a ceiling),
• Accepting reductions in the growth rate of future benefits, but smaller or more progressive than what the President has suggested,
• Insisting that, as a trade for the first two points, the President raise the maximum taxable earnings or impose a surtax above it to fund a portion of the accounts.

And then we could move on.

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