The midterm elections ended the misconception that proposing changes to Social Security leads to a swift political death. President Bush has repeated his support for voluntary personal retirement accounts, and the moderate Democratic Leadership Council also leans toward the idea.
But how to pay for it? Reformers had targeted budget surpluses to fund the transition of Social Security from government collections and disbursements to personally directed investment accounts. But the war on terrorism and the recession-induced decline in tax revenue have produced a fiscal noose that threatens reform. A potential solution is to take an ax to corporate welfare. Instead of draining taxpayers’ pockets, the billions in subsidies, grants and handouts could finance the transition to a sustainable Social Security program. Investing corporate pork in Americans’ retirements is a bargain both left and right could learn to love.
Corporate welfare is a revenue source with appeal to Democrats and Republicans, who recognize — but who so far have lacked the courage to address — the waste and inequities that special business preferences create. Corporate welfare extends from classic political pork, such as a $1.1-billion loan guarantee to build cruise ships in Sen. Trent Lott’s hometown, to financial assistance for large companies from the Overseas Private Investment Corp. and to farm subsidies that ate up $35 billion last year.
Time magazine estimated in 1998 that corporate welfare costs taxpayers $125 billion annually, a figure that includes “tax expenditures” granting exemptions to favored industries, such as timber, energy and insurance. Domestically, these handouts favor certain companies and industries over others. Internationally, corporate welfare weakens the free-trade credentials of the U.S. and invites retaliation from Europe and Asia.
Efforts by the Bush administration’s budget director, Mitchell E. Daniels Jr., to curb federal pork have yet to bear fruit.
While corporate welfare benefits are concentrated among knowledgeable Washington insiders and special interests, the costs are spread among millions of taxpayers who have little idea what they are funding. Politicians are far more likely to hear from farmers and business people seeking to preserve their handouts than from taxpayers who are sick of paying for them.
Social Security reform can break the political logjam. Sen. John McCain (R-Ariz.) and House Minority Leader Richard A. Gephardt (D-Mo.) have called for a commission to pinpoint and eliminate corporate subsidies. Taking the idea a step further and earmarking the savings for individual accounts could overcome resistance from special interests.
It may not be possible to cut all corporate welfare, and by itself corporate welfare may not fix Social Security. Nevertheless, cutting even half the total pork could fund any of the three personal account plans from President Bush’s 2001 Social Security reform commission.
Why not just transfer corporate welfare money into the current program? Why do we need personal accounts?
As it is, Social Security has no way of truly saving money. Surplus funds are credited to Social Security’s trust fund, but the actual cash just covers up deficits elsewhere in the budget. Increasing Social Security’s surpluses without saving the money in individual accounts tempts another round of corporate handouts. Personal accounts are the only true “lock box” that the government can’t pick.
Washington is reluctant to act on Social Security without a viable means to pay for reform. Likewise, it would be tough to persuade politicians to give up corporate welfare without something to offer in exchange. This “pork for pensions” trade-off could clear the way for action.
Politicians may like pork, but they’ll like the credit from saving Social Security even more.