Clinton’s Social Security Chief Backs Private Retirement Accounts

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A politician is rarely more honest than when he's leaving office. The needto shade the truth, make compromises and play politics is gone. The samegoes for political appointees, and a recent interview by outgoing SocialSecurity Administration Commissioner Kenneth J. Apfel, a Clintonadministration appointee, takes the cake.

While in office, Apfel opposed all attempts to privatize Social Security.Now that he's leaving office, Apfel says he favors President-elect Bush'sSocial Security reform plan, which would let workers invest some of theirwithholdings in private retirement accounts.

Bush's proposal, echoing the opinion of no less than six Nobel Prize-winningeconomists, proposes a fundamental change to Social Security. Rather thanstaying with pure pay-as-you-go financing, in which each generation ofworkers supports that generation's retirees, Bush wants to let workersinvest a portion of their 12.4 percent Social Security payroll tax in apersonal retirement account.

By purchasing stocks and corporate bonds, workers would largely supportthemselves in retirement. The government would serve as a backup. Prefundingretirement benefits through personal accounts avoids many of the problems oflower birth rates, increased life expectancies and reductions in theworker-to-retiree ratio, which are hurtling Social Security towardbankruptcy. Thus, it minimizes the need for tax hikes, benefit cuts orincreases in the retirement age.

Up until election day, Apfel had expressed "severe reservations" about therisks of personal retirement accounts, calling them " a step in the wrongdirection." He was on board with Vice President Gore's "risky scheme"attacks on the Bush plan. The SSA itself conducted a quiet press campaignarguing that private accounts would speed the system's insolvency and leaveworkers at the whims of the stock market.

In a recent interview with the Boston Globe, however, Apfel all but admittedthat some system of personal retirement accounts is necessary. Why? BecauseSocial Security's future benefit promises cannot be met and must be cut. Thepolitical left, Apfel said, "needs to be pushed on their mantra thatbenefits cannot be reduced, even for future generations. Social Securitybenefits are not going to be able to be as large as they are now inreplacement rate terms for future generations because of demographicchanges. The guaranteed benefit, and this is heresy on the left, will haveto be somewhat lower."

So Apfel agrees with Bush, not Gore, that the basic promised benefit comingfrom Social Security cannot be maintained.

More important, Apfel also agrees with Bush that Social Security shouldinclude additional savings on top of the reduced basic benefit. "There willbe a need for a stronger savings component," Apfel said, which should be"full and mandatory." What does this mean? It does not mean, as the Clintonadministration originally proposed, government investment in the stockmarket. It also does not mean, as Gore suggested, repaying government debtand crediting it to Social Security. Both of these would keep future benefitpromises intact.

Apfel's proposal, while couched in governmentese terms like "savingscomponents" and "guaranteed benefits," means that every worker would buildreal savings to supplement his basic Social Security benefits—in short, aBush-style system or personal retirement accounts.

But Apfel, who is joining the faculty of the University of Texas at Austin,didn't deliver only good news for the Bush team. He also warned: "The rightneeds to be pushed on their mantra that revenues cannot be increased forfuture generations for this system." This need not, and should not, mean atax increase. But it does mean that the money to fund personal retirementaccounts must come from somewhere. That somewhere could be the budgetsurplus. Or it could mean reductions in existing spending programs. Eitherway, there's no free lunch.

Apfel's comments constitute a real victory for supporters of personalretirement accounts and hint that bipartisan compromise may be possible. Ifa Clinton administration appointee sees the sense in Social Security reformbased on personal retirement accounts, maybe congressional Democrats willcome around as well. Funny what a few months can do.