PART TWO: The Word with the Big New Syllable
It was E. B. White who described “interdependence” as “the word with the big new syllable.” He was writing, toward the close of the Second World War, about the need for nations to learn that the days of going it alone were over (a colleague remarked that he was about 500 years ahead of his time), but he applied the same lesson to smaller units, such as cities (New York, he said, is “world government on a small scale”), and indeed he had applied it even earlier to Social Security. Writing in The New Yorker in 1936, in an unsigned “Talk of the Town” piece, White took note of a government pamphlet describing the new program:
We don’t know who wrote the folder that accompanied the application blanks for old-age benefits, but it seems to us a good job of writing. The first sentence, “There is now a law in this country which will give about 26 million working people something to live on when they are old and have stopped working,” is something of a government record for simple, good English. It’s the sort of thing Abe Lincoln might have penned, if he’d thought of it. It carries the faint, troubling vibrations of great prose. … For the government to manage a pool to help old people seems to us a practical and sound idea. Fear accumulates in a man’s life, like fluffballs in his pocket, and the security program will, for multitudes of people, wipe out the long, insistent dread of eventual poverty. This, not its monetary relief, is its most important benefit to the race. It also has the great advantage of rewarding people according to their own labor and diligence. … The people that make us mad are the ones who oppose the whole idea of old-age security, and believe that everybody should be allowed to work out his own destitution.
“He got it,” Bob Ball says, smiling broadly. “He grasped the core idea of wage-based social insurance—that we earn the right to benefits, and that we ensure ourselves of access to those benefits when the time comes by being part of a larger pool. We’re all in this together. That’s the whole idea behind social security, lower case or caps.”
Robert M. Ball has been in love with social security, lower case and caps, for 66 years. His career with Social Security began on January 1, 1939, when he was 24. Within 13 years he had risen to become its chief civil servant, and 10 years after that he was named commissioner, a post he held through three presidencies, longer than any of his predecessors or successors. He left the Social Security Administration in 1973 but continued to watch over the program he had done so much to build, writing about it, serving on advisory boards, and founding the National Academy of Social Insurance to advance the cause. He has been a central figure in every battle over Social Security’s future, and thus far he has always prevailed. Today, at 91, he is determined to thwart George W. Bush’s campaign to replace interdependence with a hybrid investment-cum-welfare scheme. Ball would seem to be disadvantaged by his age, the absence of a conventional power base (he works out of his living room), and most of all by the president’s dogged insistence that Social Security faces a huge crisis, but if history is any guide it would be a big mistake to count him out. Damon Runyon said that all of life is six to five against—odds just good enough to keep you in the game. Ball is in the game.
“There’s no Social Security crisis today,” he says. “When we did have one, to the extent that it really was one, we fixed it. But people like to use the word ‘crisis’ when it suits their purpose. We’ve seen this movie before. Ronald Reagan starred in it, and I can tell you how it comes out.”
The ‘V’ Option
Ronald Reagan voted for Franklin Roosevelt in 1932, and again in 1936 and 1940 and 1944—in short, every chance he had—but by 1964 he had amassed a modest fortune, and with the astigmatism of hindsight he saw the New Deal in a darker light. Its big-government programs, he believed, might once have been useful in responding to the Great Depression; but that was then, so why hadn’t the government (and his taxes) shrunk back to Hooveresque proportions? Worse yet, Lyndon Johnson with his Great Society scheme had come along to pick up where FDR had left off.
That prospect, coupled with his own nascent political ambitions, was enough to send Reagan out onto the campaign trail for Barry Goldwater, whose chances of unhorsing Johnson seemed to diminish each time he opened his mouth. Goldwater suggested making Social Security voluntary—a position widely viewed as code for getting rid of it, since letting affluent people opt out of paying into social insurance would inevitably mean under-funding it and then watching it sink under the burden of those who most needed coverage but were least able to pay for it. But Goldwater said flatly: “If a man wants it, fine. If he does not want it, he can provide his own.” Delighted Democrats rolled out a TV commercial featuring a Social Security card being ripped in half, whereupon Goldwater’s handlers persuaded him to pledge his grudging support for the program—although he could not resist a final fulmination against saddling it with “unnecessary new burdens, such as medicare” (not yet enacted), which would “bankrupt” the system.
Goldwater might have been muzzled, but Reagan was not. A few days before the election, he gave a speech in which he articulated a philosophy he would long uphold. He was tired of liberals insisting that “we are always ‘against’ things, never ‘for’ anything.” That wasn’t true: “We are for a provision that destitution should not follow unemployment by reason of old age, and to that end we have accepted Social Security as a step toward meeting the problem.” But such carefully circumscribed acceptance didn’t have to mean leaving FDR’s legacy alone. “Can’t we introduce voluntary features,” Reagan asked, “that would permit a citizen who can do better on his own to be excused upon presentation of evidence that he had made provisions for the non-earning years?” There was that unmistakable “v” word again, guaranteed to bestir somnolent voters in key Florida precincts. Although Goldwater was already doomed, Reagan’s 11th-hour revival of the issue contributed to Johnson’s landslide.
Reagan was well aware that millions of Americans were bound to be alarmed by any talk of altering Social Security, but he brought up the “v” option again while trying to wrest the presidency from Gerald Ford in 1976, whereupon Ford won the Florida primary with 60 percent of the over-65 vote. That loss finally persuaded Reagan that he could ill afford to speak candidly about his beliefs, and he did his best to redact them four years later when he sought to oust Jimmy Carter from the White House.
In the second of their three debates he was asked about his enthusiasm for a voluntary Social Security system, and he blandly denied ever entertaining such thoughts. “Many years ago,” Reagan said, he had been concerned about “a young man orphaned and raised by an aunt who died—his aunt was ineligible for Social Security insurance because she was not his mother—and I suggested that if this is an insurance program, certainly the person who is paying in should be able to name his own beneficiary. That is the closest I have ever come to anything voluntary with Social Security.” This was the purest uncut blarney, and Carter should have demolished it. But he had other things on his mind—hostages in Tehran, runaway inflation—and three months later he watched morosely as President-elect Reagan was sworn in.
Once in office, Reagan found himself presented with the opportunity of a lifetime. The Senate was in Republican hands for the first time since 1954, and the House, although nominally still under Democratic control, was full of loose cannons whose loyalty to Speaker Tip O’Neill varied from moment to moment. O’Neill himself seemed ready to accommodate the Reagan Revolution—in part because, as his biographer John Aloysius Farrell has written, he had been an eyewitness to three failed presidencies and wanted no part of precipitating another, and in part because he was acutely aware of being viewed as a symbol of Democratic torpor. The new president was charming and telegenic and seemed to have everything going for him, especially after taking a bullet from a would-be assassin and then jauntily asking his surgeons for assurance that they were all Republicans, while O’Neill assiduously avoided television cameras for fear of coming across as “big, fat and out of control—just like the federal government,” as an uppity 27-year-old Republican member of the House famously described him. The political momentum of the early months of 1981 was, in short, Reagan’s to lose; he emerged from the hospital with the wind at his back. Best of all, from a strategic standpoint, Social Security was in serious financial trouble, and finally the way seemed open for him to reshape the program to his liking.
The Perfect Economic Storm
In the early 1970s, after many years of relatively untroubled evolution, Social Security had suddenly been overtaken by what might justifiably be described (despite much subsequent overuse of the term) as the perfect economic storm. It was all the more devastating for being entirely unexpected and for taking a form that was not supposed to exist in nature.
According to the conventional wisdom, certain economic developments did not occur at the same time. Economic stagnation did not trigger inflation (how could it, if demand was not being driven up?); nor could inflation coexist with high unemployment. Under normal circumstances wages were supposed to rise faster than prices, in part because of rising productivity, and the steady upward march of employment and wage levels would ensure that a program based on deductions from payrolls could always be adequately financed and able to meet its obligations.
But the 1970s soon proved to be shockingly abnormal, featuring an energy crisis complicated by two major disruptions of oil supplies, a costly war in Vietnam, the implosion of a second-term presidency, the accelerating disappearance of economic-backbone jobs in steel, textiles, and manufacturing, and the onset of the worst recession in a generation. “Stagflation” entered the lexicon: sluggish economic growth accompanied by high inflation and high unemployment. That was the story of the decade. The unemployment rate rose from an all-time low of 3.5 percent in 1969 to 9 percent in 1975. Prices, which had been rising at an average rate of 2.5 percent annually from 1950 to 1972, shot up throughout the decade, and the 13.5-percent jump from 1979 to 1980 was the biggest single-year increase since 1945. Social Security’s actuaries, meanwhile, had predicted that wages, which had been rising about 4.7 percent annually since 1950, would increase about 13 percent between 1976 and 1981; in fact wage levels fell 7 percent.
For Social Security the timing of the storm could not have been worse. In 1972, after decades of enacting benefit increases that tended to leave benefit levels lagging behind improvements in the nation’s overall standard of living, Congress authorized automatic annual cost-of-living adjustments linked to changes in the Consumer Price Index, with the changeover to take effect in 1975. Automatic COLAs would have made perfect sense in the 1960s, and seemed to make just as much sense in 1972. A year later, however, the Arab oil embargo triggered the decade’s first great unexpected blast of inflation—and suddenly made automatic increases in benefits much more problematic.
The 1972 amendments to the Social Security Act also included a one-time 20-percent increase in benefits, largely the result of a who-blinks-first standoff between President Nixon and House Ways and Means Committee chairman Wilbur Mills, whose own presidential ambitions had not yet been scuttled by the discovery of his warm relationship with Annabella Battistella, aka Fanne Foxe, an ecdysiast also yclept the Argentine Firecracker. She was the stripper, you remember, who made a splash by leaping from Mills’s Lincoln Continental into the Tidal Basin in front of the Jefferson Memorial . . .
But back to our story. We close the book on 1972 with Congress and the president having made substantial new commitments to the nation’s 28 million Social Security beneficiaries. But the unforeseen combination of stalled wage levels and rising unemployment meant that payments into Social Security began falling far below expectations at the exact moment when soaring prices meant that future benefit adjustments—those automatic COLAs—were going to be much greater than expected. Perfect storm.
Within months it had driven the actuaries’ assumptions onto the beach, and Social Security’s trustees were warning that the system faced the same fate unless course changes were made and soon. The urgency of this message was, like all such things, filtered through the media, which for the most part failed utterly to explain that Social Security’s troubles were not of its own making. Contrary to subsequent mythology, they were not the result of Congress making promises that couldn’t be kept, nor of expanding the system far beyond what Franklin D. Roosevelt had envisioned, nor of demographic changes (more oldsters living longer, fewer youngsters paying in).
The crucial historical fact—that Social Security’s first real financial crisis was brought on by the confluence of a freakish set of external economic circumstances that no one had anticipated—seems never to have fully penetrated the media’s or the public’s consciousness. On the contrary, public fears about the future of Social Security, expressed most often in the fatalistic belief that “it won’t be there for me,” can be traced with certainty to the mid-’70s, when the erroneous idea caught hold that it was Social Security, rather than the larger economy, that was out of control.
Jimmy Carter inherited Social Security’s financial challenge and tried unsuccessfully to confront it. When he became the first president to propose trimming benefits, Time reported that the idea “provoked barely a peep of protest from Congress” because “the legislators know that the rapid growth of Social Security benefits has put a time bomb under the whole U.S. economy.” Newsweek chimed in: “Social Security has simply grown too large.” Forbes huffed that it was “the monster that’s eating our future.”
Starving the Beast
Shaped by such insightful analyses, public opinion when Reagan took office was disposed to believe the worst. And in the short term, Social Security did face a serious cash-flow problem: the old-age insurance trust fund would be exhausted within months. The fund, if authorized by Congress, could borrow from the Medicare and disability trust funds, which were flush, but that was only a stopgap solution. (In the 1990s, however, the crunch would ease, because the big baby-boom cohort of workers, hitting their top earning years, would be paying for the retirement of the smaller generation born during the Depression—a reassuring fact but one that attracted little media attention in 1981.)
Reagan’s chief of staff, James Baker, astute in the ways of Washington and aware that Social Security remained a volatile issue, urged the president to approach any changes with caution and on a bipartisan basis. But Reagan’s budget director, David Stockman, had no such qualms. A young former congressman and epic overreacher even by Washington’s demanding standards, Stockman had his own agenda, as he would later admit at great length and with remarkable candor to the reporter William Greider. He saw Social Security as a “noble” idea that had gone awry, burgeoning into “a capricious hybrid of out-and-out welfare benefits and earned pension annuities, which were hopelessly tangled together and disguised under the fig leaf of social insurance.” Stockman, who could mix metaphors with the best of them, called Social Security the “inner fortress” of the hated welfare state, and he wanted to use a succession of tax cuts and budget cuts to “starve the beast.”
Stockman drew up a package of proposed changes and managed in the space of a one-hour briefing to get Reagan’s support for all of them. Among other things he wanted to cut benefits for men and women who retired early, at 62, rather than at the normal retirement age of 65. Reagan liked that idea, partly because early retirement was not part of the original 1935 program and thus could be attacked (or so he believed) as an example of the post-FDR bloating of the system, and partly because he believed that workers retiring early were running up the costs of the program and thus the federal deficit. He was wrong: early retirees got benefits equal to 80 percent of what they would have received if they had waited to retire until 65, an actuarial adjustment designed to be cost-neutral over the average lifetime. Stockman, however, proposed to slash early retirement benefits to 55 percent of normal and to implement the change immediately. That meant that workers retiring in 1982, instead of receiving an expected $372 per month on average, would get a third less, or $246.
That was a big cut, and when Reagan’s plans were announced on May 12, 1981, the reaction was swift and spectacular. Millions of workers getting ready to retire suddenly found themselves forced to reconsider whether they could afford to. Along with their employers, whose plans to replace them had to be put on hold, they besieged Capitol Hill. The president’s allies in Congress, who had been informed of the changes only hours before they were announced, could not imagine what Reagan and his aides had been thinking. “They threw a life rope to Tip O’Neill,” said Sen. Robert Dole.
Indeed, O’Neill instantly realized that Reagan had made a colossal gaffe. And it was O’Neill’s young counsel, Kirk O’Donnell—who had grown up in Boston and had spent, as Bostonians do, many an hour standing on the dank subway platforms of the Metropolitan Transit Authority staring down at the red signs warning “Third Rail Alive”—who coined the phrase that others have appropriated ever since. “Social Security is the third rail of American politics,” O’Donnell told reporters, warning them not to assume that Reagan would prevail. “Touch it and you die.”
Eisenhower had not touched it (and indeed had dismissed its critics as “stupid”). Nixon had not touched it. Ford had not had time to touch it. Now Reagan had touched it, with an effect not seen since the days of Barry Goldwater. When the blue smoke cleared away, a revitalized Democratic opposition stood in place of the shambling defeatists who had been suffering through Reagan’s long honeymoon with the electorate. With one fumbling stroke Reagan had given new credence to the old charge that Republicans had never really accepted Social Security and would start shrinking it as soon as they got the chance—a charge made more credible by a researcher’s subsequent finding that in the course of 138 votes on Social Security matters between 1935 and 1982, Republicans voted for contraction 73 times (53 percent) while Democrats voted for expansion 125 times (91 percent).
Eight days after Stockman’s boomerang flew in, the Senate voted, 96 to zero, to do nothing that would “precipitously and unfairly penalize early retirees.” Reagan backed off while his advisors tried to figure out what to do next. And Tip O’Neill, aware of the need to develop a counterstrategy that could win and hold broad Democratic support (no easy feat in the best of times, and certainly not in the face of what was bound to be a renewed charm offensive by the president), turned to Robert M. Ball.
High Noon in America
Ball was 67 years old and, technically, retired, after a career with Social Security that had made him the dominant figure in his field. He had resigned as Social Security commissioner in 1973 not because he wanted to but because he knew that Nixon, at the start of his second term, would soon be putting his own people in charge of agencies led by people suspected of less than total allegiance to the Republican cause. Ball, a New Deal loyalist appointed by Kennedy and reappointed by Johnson, fit that profile, although throughout his career he had carefully avoided any taint of overt partisanship and had worked successfully with Republicans as well as Democrats. Now, in 1981, he was free to speak his mind—and, more important, to use the skills honed over 40 years to save his beloved program from what he saw as the first serious threat to its continued existence.
Ball had watched the approach of the Reagan Revolution with apprehension. Despite Reagan’s reassuring rhetoric in the 1980 campaign, Ball did not believe that the aging tiger had changed his stripes. When Stockman’s plans went public, Ball was ready. He prepared a detailed rebuttal, along with a discussion of various ways to resolve Social Security’s solvency problem, and then spent much of the summer meeting with O’Neill, Sen. Daniel Patrick Moynihan, and other members of the House and Senate, as well as testifying before both bodies.
O’Neill was ready for a showdown. Polls indicated support for Reaganomics sliding from 61 percent in January to 38 percent after the early-retirement brouhaha. O’Neill no longer saw any need to kowtow. “Let’s face it,” he told a union convention, “this is a callous, right-wing administration committed to repealing the Great Society, the New Frontier, the Fair Deal, and the New Deal. It has made a target of the politically weak, the poor, the working people.” Democrats might not be able to roll back the Reagan Revolution, but with any luck they could tear up the tracks before it reached Social Security.
Ball, working with O’Neill’s staff, promoted a straightforward strategy to protect Social Security against further attacks while making the case for restoring it to long-term solvency. Reagan kept insisting that Social Security was “teetering on the edge of bankruptcy.” Nonsense, Ball said. Other than the short-term cash-flow crunch in the old-age insurance trust fund, there was no crisis. The old-age program would be able to get through the 1990s without difficulty, and the longer-term doomsday forecasts were at best speculative. Yes, it was true that the ratio of workers to retirees would drop from about three to one to two to one, or close to that, when the baby-boom generation began retiring toward the second decade of the 21st century, but the impact of that change would depend on many variables that could not yet be quantified with certainty. And because there would be time, in any case, to implement any needed long-term changes, he insisted that there could be no justification for initiating major benefit cuts in 1981.
Ball in conversation is nothing if not patient and persuasive. That summer, he conversed at length with many Democrats, educated them in the arcana of Social Security financing, and shored up their hope that the sky was indeed not falling. Meanwhile Reaganomics continued to lose support as the nation slid into the beginnings of what would become the worst recession since the Depression. There were two immediate results: Congress passed a budget act that made only limited changes to Social Security benefits (such as phasing out survivors’ benefits for college students); and Reagan threw in the towel. For the time being, at least, he withdrew Stockman’s proposed changes.
The New York Times ran a flattering profile of Bob Ball that began: “The vast majority of the 36 million Americans receiving Social Security checks have never heard of him, but Robert M. Ball is probably more responsible than any other individual for persuading Congress to ignore President Reagan and make only minor adjustments to the retirement system.” Indeed, the retired bureaucrat had outmaneuvered the morning-in-America president. But of course it was only the first round. Reagan knew he needed to get Social Security out of the way until after the 1982 congressional elections. “He’ll be back again after that,” Ball told the Times.
Reagan chose a proven buy-time ploy: appoint a presidential commission. He wanted, he said, to “remove Social Security once and for all from politics”—or at least until the December 31, 1982, due date for the 15-member commission’s report, safely past the congressional elections as Ball had predicted.
As chairman Reagan chose Alan Greenspan, former chairman of the Council of Economic Advisers in the Ford administration. Greenspan, a lifelong libertarian, had always thought ill of compulsory Social Security, but he was also an astute political carnivalist, adroit at discerning the direction and tempo of the parade and stepping out with it. He would need those skills to handle the bipartisan National Commission on Social Security Reform, whose membership, when it finally jelled, included four members of the Senate (including Dole and Moynihan), three members of the House, four representatives of the business community, one representative of labor (Lane Kirkland, president of the AFL-CIO), two former members of Congress, and one former Social Security commissioner. Ball, appointed by O’Neill, functioned as his proxy.
The four most important participants would prove to be Ball, Greenspan, Moynihan, and Dole. The two senators, veteran Capitol Hill warriors, were hardly ideological soul mates, but in the end were able to find common ground at a moment when it mattered. And Greenspan, in an impressive feat of ringmastering, not only kept the commission from dissolving in squabbles but ultimately helped guide it to an outcome far more productive than Washington’s skeptics believed possible.
For more than a year, however, the commission struggled, hampered by operating under the long shadow of politics. Early on, the White House put out the word that the commission should focus on cutting benefits and that the president would not consider tax increases. That prompted the feistiest of the commission’s Democrats, Rep. Claude Pepper, to denounce Reagan, and there was talk among the Democrats of walking away. But Reagan’s stubborn pursuit of a one-sided solution played into Ball’s hands by solidifying rather than splintering the Democrats and by allowing him to show the panel’s undecideds that there were other reasonable ways to think about restoring long-term solvency—including revenue-raising options. In this he had the tacit assistance of Greenspan and most of the commission’s staff, not because they agreed with him but because they were committed to a process in which no idea would go unexplored for ideological reasons. That meant, in effect, that Reagan, unlike O’Neill, had no proxy on the commission—at least none with Ball’s firepower.
It was Moynihan who provided the useful dictum that “everyone is entitled to his own opinion but not to his own set of facts.” Greenspan and Ball found that they could agree, albeit for different reasons, on the important question of how severe Social Security’s financing challenge actually was. If it was seen as a big enough problem, Greenspan thought, the commission’s hard-liners on both sides would have to compromise. Ball, on the other hand, had been badly burned in the 1970s by making optimistic assumptions which, when they proved wrong, contributed to the erosion of public confidence in the program. To avoid having that happen again he was inclined to make pessimistic assumptions now. That would result, he hoped, in building support for changes large enough to ensure solvency over the entire 75-year period for which Social Security’s actuaries make estimates.
A 75-year forecast is a trip to the moon on gossamer wings. Ball is fond of pointing out what would have happened to a 75-year estimate made in, say, 1928, to show that actuarial assumptions are always subject to change and to underscore the more basic point that people responsible for a program as dynamic as Social Security should expect to have to make changes in its financing from time to time. There are simply too many variables impinging on the program to have it otherwise. But the trustees wanted 75-year forecasts, in part because they oversaw a program collecting contributions from 18-year-old workers who would thereby earn the right to start collecting retirement benefits some 47 years hence and to continue receiving them for 20 to 30 years or more. Although no other entity tries to plan 75 years ahead—no corporation, no bank, no government agency, no family, no country—Ball did not find the idea entirely unreasonable. What was unreasonable, he thought, was the way the press reported these annually revised forecasts, treating them as though the appearance of a possible distant shortfall in funding was proof of the system’s imminent bankruptcy. This, of course, played into the hands of Social Security’s critics, and the annual release of the trustees’ report had become, and would continue to be, a weapon of mass distraction. So Ball was all for making pessimistic assumptions, if through that tactic he could persuade commission members to support raising revenues enough to keep the program in balance for 75 years.
Meanwhile the commission stumbled along from one monthly meeting to the next, failing to develop a consensus view on much of anything—except, interestingly, when it agreed to hear arguments for partially privatizing Social Security by allowing workers to divert some of their contributions into private investment accounts. A few commissioners, including Greenspan, found the idea intriguing, but none of them wanted to pursue it, since they recognized that siphoning off funds to finance the accounts would simply exacerbate Social Security’s solvency challenge.
Reagan’s fond hope that the commission would sideline Social Security during the 1982 elections went unfulfilled. O’Neill and the Democratic National Committee largely succeeded in keeping the issue in the news, amplifying voters’ awareness that Reagan was trying to cut benefits, and Claude Pepper, at 82 the oldest member of the commission, took time off from its deliberations to barnstorm through nearly two dozen states, urging older voters to turn out to save the program. They did, although the message of the November elections was ambiguous: Republicans held on to their majority in the Senate, but Democrats picked up 26 seats in the House.
If nothing else, however, the election demonstrated that the third rail was still alive, and now time began to work in favor of a compromise. Absent one, Social Security would not be able to pay full benefits on time after August 1983. What would happen then? Nobody knew, and nobody wanted to find out. Images of an economy in which 36 million people suddenly lost purchasing power were nightmarish enough, but the thought of all those people using their credit cards to buy one-way bus tickets to Washington was worse. In the White House, where Jim Baker had David Stockman on a short leash with a choke collar, a decision was made to send a peace feeler to Ball—who picked up his phone one afternoon to hear Baker’s aide, Dick Darman, asking, “Can we have a meeting that never took place?”
One Last Try
The commission missed its December 31 deadline, and to all outward appearances remained deadlocked. But although Reagan and O’Neill weren’t talking personally (“they couldn’t stand each other and wouldn’t have been able to stay in the same room,” Ball says, contradicting recent mythology), their proxies Baker and Ball were meeting, and Dole and Moynihan contributed to a perception of bipartisan thaw. Dole submitted an op-ed to The New York Times in which he argued that “the issues confronting us present as much opportunity as peril” and that Social Security could be saved by “a combination of relatively modest steps, including some acceleration of already scheduled taxes and some reduction in the rate of future benefit increases.” Moynihan read the op-ed at his Senate desk on the morning of January 3, 1983, and then walked across the chamber to compliment Dole on it. “Are we going to let this commission die without giving it one last try?” he asked, and they decided to get together with Ball. In short order, Greenspan joined the discussion group, and it occurred to Ball that this January thaw was real.
Although in the ensuing days there was to be much high drama (with Ball at one point sliding down a snow-covered slope behind his house to a secret rendezvous with a waiting White House car, to avoid the reporters staked out at his front door), the parleying was on its way to the bipartisan outcome that Reagan at that point may actually have been hoping for. In any case Baker and Darman carried none of Reagan’s and Stockman’s ideological baggage: their goal was to detach the president from the third rail before the 1984 campaign. If that meant tax hikes as well as benefit cuts, so be it.
The plan that emerged in mid-January, after a final swirling round of negotiations, was a nicely symmetrical mix with Ball’s fingerprints all over it. Revenues were to be increased enough to get the program into the less turbulent ’90s, half by increasing taxes and half by slowing the growth of benefits. Among the changes on the tax side, contribution-rate increases already in the law but scheduled to go into effect in later years were to be moved up to 1984 and 1988, and for the first time benefits would be subject to the income tax, a change that would increase the program’s redistributional impact by retrieving some of the money paid to higher-income retirees. (Reagan liked that one because he had been saying for years that he didn’t see why he and his rich friends should get checks from Social Security.) On the benefit-trimming side, the principal change was that the COLA scheduled for June would be postponed until the following January and put on a calendar-year basis.
One issue was left for Congress to resolve. The funding changes would close only about two-thirds of the anticipated 75-year deficit. Eight members of the commission wanted to close the rest by gradually increasing the retirement age. Ball much preferred to do the job by scheduling a small tax increase for 2010, but he couldn’t muster the votes. His allies in Congress ran into the same problem, with the result that the commission’s recommendations, when enacted, were amended to include a phased increase in the retirement age, so that workers born in or after 1960 must work until 67 to be eligible for full retirement benefits.
Ball to this day sees that as a completely unjustified benefit cut. But at the time it appealed to members of Congress for several obvious reasons: the phased increase would have no immediate impact; it could perhaps be justified by increases in longevity since 1935; and best of all, it did the job of closing the long-range deficit, at least on paper. Indeed, the trustees soon proclaimed the program to be in balance until 2057. And Ronald Reagan, turning away from the third rail with what must have been palpable relief, stood at a cluster of microphones on April 20, 1983, to proclaim that the commission’s work and the ensuing legislation “demonstrates for all time our nation’s ironclad commitment to Social Security. . . . Today we reaffirm Franklin Roosevelt’s commitment that Social Security must always provide a secure and stable base so that older Americans may live in dignity.”
The Crisis Is Elsewhere
O’Neill, so lyrically described by Jimmy Breslin as “a lovely spring rain of a man,” is gone. Reagan is gone. Moynihan is gone. Greenspan has long since gone on to the Fed, and Dole has gone on to fight dysfunction. Only Ball remains on the ramparts—convinced that the program he saved in 1983 is in fundamentally good health and quite capable of enduring without major change for a very long time. Indeed, he has lately joined forces with Nancy Altman, the attorney and social insurance expert who served as Alan Greenspan’s chief aide on the commission, to make that case to as many members of Congress as will listen. “If there’s a crisis today,” Ball says, “it’s not a crisis within Social Security. We should be looking elsewhere.”
Just where becomes clear when one looks at the reasons why Social Security’s long-range projections no longer show the program remaining in balance for 75 years. Some of the slippage has to do with obscure technical matters, such as lowered actuarial expectations about future productivity increases. But the actuaries have also been tracking an economic phenomenon that is entirely external to Social Security but clearly affecting it. That issue is income inequality. It may not be news that the gap between rich and poor in the United States is growing, but the impact of that gap on Social Security’s finances has not received much attention. “It should,” says Ball.
Social Security operates on the principle that we’re all in this together but only up to a point. No attempt is made to collect payroll taxes on every last dollar earned by every worker. To do so, it is widely believed, could inhibit economic growth by making it unduly costly for employers to hire people, and, because Social Security’s benefit formula is redistributional, questions would arise about whether high earners should or should not receive benefits commensurate with their contributions. (To say yes is to vote to turn Social Security into a retirement plan for richies, and to say an unequivocal no is to invite them to want out of the program.) So there is a cutoff point beyond which earnings are allowed to escape such taxation. That cap, which rises with increases in average earnings, is currently pegged at $90,000. When Congress last looked at this issue, in 1983, the goal was to set the cap to tax 90 percent of all earnings. Setting a cap that rises with increases in average wages should do that job, as long as the distribution of earnings clusters in some proximity to the average.
Income inequality means, however, that the earnings of the fortunate few at the top of the nation’s economic ladder rise much more than the wages of the less fortunate many who find themselves clinging to the lower rungs. That has been happening for a long time now: the greenest Goldman Sachs trader starting out at a salary 10 times higher than the top-paid Wal-Mart “associate” may well see bigger increases in annual bonuses than the big-box-store worker will ever earn in wage increases. The more that wage gap widens, the higher the percentage of total wages that exceeds the Social Security payroll cap and thus escapes taxation.
Since 1983 the percentage of all earnings captured by the maximum earnings cap has slipped from 90 percent to around 85 percent. That may not sound like much, but in a program as big as Social Security such losses very quickly add up. Over the past 20 years, that slippage has probably cost the program close to $200 billion in lost revenues, and over the next 75 years could cost $1 trillion or more. Capturing some of that money by lifting the cap—gradually, so as to minimize any shocks to employers and employees—until the 90-percent goal is achieved again could close about 40 percent of Social Security’s anticipated long-range shortfall, and Ball maintains that relatively minor adjustments to revenues and outlays could close the rest. If Congress had set the cap just a bit higher in the first place, and then adjusted it as needed to avoid slippage, we might not be looking at a long-range shortfall at all, and talk of transitioning to an Ownership Society would still be confined to a few libertarian think tanks. In any case, why not concern ourselves with income inequality instead of making Social Security the fall guy for its consequences?
Bob Ball guided and presided over the evolution of a program that has all but put an end to the fear of destitution in old age, bringing the poverty level among the elderly down from 35 percent in 1960 to 9 percent today. Ball insists that Social Security is still doing the job it was designed to do—no more, no less—and that the need is as great as ever, a point that would seem to be underscored by the fact that 53 percent of the workforce has no private pension coverage, as well as by each new headline about yet another pension plan failure or corporate fiasco that leaves a few thousand 401(k) plans stripped of value.
Ball takes pride in being called an unreconstructed New Dealer, but when pressed to define his philosophy in a few words, he reaches back beyond Roosevelt. He particularly likes this thought: “The legitimate object of government is to do for a community of people whatever they need to have done but cannot do at all or cannot so well do for themselves in their separate and individual capacities.” Abe Lincoln wrote that, not FDR. Never mind, Ball says: “I can work with Republicans, too.”
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