Why reform is tough

Congress begins formal debate on the retirement system, but a 1983-style deal looks hard to reach.

On the unseasonably cold morning of April 20, 1983, a coatless Ronald Reagan sat down on the South Lawn and signed a bill intended to rescue Social Security from imminent doom.

Neither Republicans nor Demo-crats were thrilled by everything in the legislation. But by agreeing to raise both payroll taxes and the retirement age they refreshed the government retirement program with a river of new cash. The compromise, President Reagan said, "is a clear and dramatic demonstration that our system can still work when men and women of good will join together to make it work."

Fast forward 22 years. Once again Social Security and its finances are Washington's Topic A. A 1983-style signing ceremony seems a distant dream, however. What did that era have that 2005 hasn't got?

Politics was different then, for one thing. Powerful figures on both sides of the aisle wanted a deal.

But the biggest change may be the acuteness of the problem. In 1983, Social Security was set to hit a fiscal wall within months. Today, the estimated time of arrival of the program's cash crunch is measured in decades - meaning the urgency needed to overcome political obstacles may be difficult to summon.

"Today they don't have that deadline. They're not playing in sudden death overtime,' says Edward Berkowitz, a professor of history and public policy at George Washington University.

Formal 2005 debate in Congress over Social Security reform began Wednesday, with a hearing on the subject before the House Ways and Means Committee. The topic was the general financial health of the system, rather than President Bush's specific proposal to establish private retirement accounts.

With Social Security's finances payments projected to exceed its tax receipts in 2018 or so, the program does not face an immediate crisis, David M. Walker, head of the Government Accountability Office, told the House panel.

But it does face a long-term financing problem, and "it would be prudent to address it sooner rather than later," Mr. Walker said.

The sharpness of some lawmakers' words indicated how difficult it may be for Congress to follow Walker's advice. In his opening statement, the ranking Democrat on the panel, Rep. Charles Rangel of New York, said flatly that "private accounts will not be on the table if you are looking for bipartisanship."

Meanwhile, the committee's Republican chairman, Rep. Bill Thomas of California, chided Democrats for opposing any potential cuts in benefits. "In 1983, under the Democrat leadership, the solution [to Social Security's problems] included cutting benefits," plus raising taxes, Rep. Thomas said.

But 1983 wasn't a halcyon time of bipartisan Washington comity. Far from it. It was a polarized, angry political era. In a few ways, it was a time much like today.

Prior to settling down to negotiations, Sen. Daniel P. Moynihan (D) of New York accused Republicans of "terrorizing older people" with their proposals. GOP Sen. William Armstrong of Colorado struck back, charging Democrats with "demagoguery."

"It wasn't as easy [to reach a deal] as people remember it," says Eric Patashnik, a University of Virginia political scientist.

The root cause of Social Security's problem was the same then as today: a declining number of tax-paying workers per retiree, thanks to a growing number of older Americans. But the added twist of the time was that this problem was turbocharged by stagflation. Fast-rising prices were making the cost of Social Security soar, while a stagnant economy meant revenue remained relatively flat.

The Reagan administration was relatively eager to address the problem. However, a presidential trial balloon proposing deep cuts in benefits for early retirees proved highly unpopular - so much so that it was repudiated by the GOP-controlled Senate by a vote of 96-0.

Burned, the Reagan team handed Social Security off to a 15-member presidential commission headed by economist Alan Greenspan, who is today the chairman of the Federal Reserve.

The commission itself remained deadlocked through much of 1982. But eventually an inner group of negotiators, meeting in secrecy under White House auspices, helped craft a deal. Previously scheduled payroll-tax increases would be rolled forward, among other things. The age for full retirement benefits would be pushed back from 65 to 67.

One lesson here, say historians, is that a few people of will and knowledge can overcome a larger atmosphere of partisanship and mistrust. The commission included such prominent Republicans as Senate Finance Committee chairman and presidential aspirant Sen. Bob Dole of Kansas, and Democrats such as Robert Ball, a longtime commissioner of Social Security. A core group from both parties knew they had little choice but to hammer out a compromise - and they did.

"It was a high point of almost all of these peoples' careers," says Dr. Berkowitz of George Washington University.

But this statesmanship was powered by panic, in a sense. Both sides concluded that without action by early 1983 Social Security would have started to run a slight deficit by midsummer. Back then, the system had not piled up a large trust fund surplus - meaning there was a possibility that payments to seniors would be disrupted.

From this may come a second lesson: You need a consensus about what's broken before you can argue about the repairs. Today Republicans generally describe the situation as a crisis requiring urgent action. Democrats say it's not that bad, and add that personal accounts are irrelevant to the issue of program solvency, anyway. "In 1983 there was a bipartisan agreement on the problem. Right now we don't see that," says Dr. Patashnik of the University of Virginia.

The final lesson may be that when it comes to difficult social issues, divided government works. Democrats controlled the House in 1983, and had a stake in helping cobble together a Social Security solution. Out of power today, they may have less incentive to compromise.

"Divided government can make both parties believe they have ownership of a problem," says Patashnik.