Social Security reform splits White House political, economic teams

Social Security reform is splitting President Obama’s economic and political advisers.

Obama is being pulled in opposite directions by those whose priorities are fiscal and those whose No. 1 concern is electoral.

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Treasury Secretary Timothy Geithner, National Economic Council Director Gene Sperling and Sperling’s deputy, Jason Furman — leading figures in the president’s economic team — are pressing Obama to cut Social Security benefits if necessary, say sources familiar with their positions. 

But Obama’s political team, led by David Axelrod, David Plouffe and Jim Messina, are urging the president to understand that backing benefit cuts could prove disastrous to his 2012 reelection hopes, sources say. 

The political team is winning the argument so far, but internal debate rages at the White House as Republicans in Congress insist sweeping efforts to restore government finances must include Social Security reform.

 “Gene Sperling and Jason Furman and some of the Treasury people started with the posture that we’re the best people to reform Social Security — that was when the Democrats had a majority in both houses of Congress,” said a Democratic policy expert who has met Obama’s economic policy team over the past two years. 

“The same people have continued to make that argument even as they’re now responding to conservatives who are stronger in the Congress,” the source, who strongly opposes benefits cuts, told The Hill. 

“There are two camps,” the source added. “One camp wants to be able to throw a bone to Republicans and some [centrist] Democrats.

 “The political people would prefer not to be accused of being the party that cuts Social Security in those ways. Some political people would like to see the president out there defending the program and making the case that it has nothing to do with the deficit.”

A second Democratic source, who has pushed to reform Social Security by increasing the flow of revenues to the trust fund and reducing benefits, said, “Geithner’s been the most forward-leaning.”

Obama’s economics team is telling the president that benefit cuts would be less draconian with Democrats controlling the White House. Cutting costs for the safety net would help bond markets and restrain future interest rates, they add. 

Social Security became “cash negative” last year as it began paying out more in benefits than it received in revenues. Thus, the federal government has begun borrowing in capital markets to pay off its IOUs to the trust fund. 

The trust fund itself has a theoretical $2.6 trillion surplus, but that money has been spent by the federal government like general revenues. The payback has arrived at a very difficult time, when Washington is running a $1.6 trillion budget deficit. 

Geithner and his lieutenants argue that benefits reform will give the markets confidence that Obama and Congress have the will to address the problem of long-term national debt.  

White House spokeswoman Amy Brundage said, "The notion that the president’s team is divided on our approach to this issue is flatly untrue. The president and his team are unified in the belief that the only way to reach consensus on strengthening Social Security for future generations is for Democrats and Republicans work together in a bipartisan way, and any suggestion to the contrary is simply false."Sperling declined to answer questions about Social Security when asked about them by The Hill during his visit to Capitol Hill last week.

 Geithner told the Ways and Means Committee in February that Congress must shore up the trust fund. He said the president would work with lawmakers but would not accept drastic cuts. 

 “We will reject plans that slash benefits; that fail to protect current retirees, people with disabilities and the most vulnerable; or that subject Americans’ retirement savings to the whims of the stock market,” Geithner told lawmakers. 

 Democrats opposing any cuts worry that Geithner left the door open to benefit reductions that are characterized as modest by centrist Democratic policy experts, such as raising the retirement age from 67 to 68 by the year 2050.

Plouffe, a senior White House political adviser, appeared to slam the door shut on even modest cuts during a conference call with liberal reporters and bloggers last month. 

“We talked a lot about this as far back as the campaign, but are very clear that if there are proposals out there that are acceptable, that don’t reduce benefits, don’t slash benefits, that don’t affect current retirees, the president is open to proposals that would shore the system up in the long term,” Plouffe said, according to The Huffington Post.

 Liberals noted that, by Plouffe’s definition, proposals to “reduce” benefits would be unacceptable. He seemed to rule out raising the retirement age by one or two years or using a new calculation for cost-of-living adjustments to lower payouts. 

 Obama asked Congress to bolster the Social Security trust fund during his State of the Union address in January but did not call for a higher retirement age or revised cost-of-living calculations. 

 One Democratic source familiar with the internal debate said Obama’s political team gained the upper hand when three House Republican members of the president’s fiscal commission voted against a proposal that would have raised the retirement age and slowed cost-of-living raises.

They argued that it made no sense for Obama to alienate his liberal base if Republicans would not support a good-faith effort to reduce Social Security’s cost curve. 

Speaker John Boehner (R-Ohio) has assured Obama that House Republican leaders would support him if he sought to reform entitlements and would not exploit them for political gain in the 2012 election. 

Sen. Tom Coburn (R-Okla.), who is trying with Senate Budget Committee Chairman Kent Conrad (D-N.D.) and Senate Democratic Whip Dick Durbin (Ill.) to craft a broad deficit-reduction package, says Social Security reform must be included, giving Obama another reason to support an overhaul. 

Democratic sources who have discussed reforming entitlement programs with senior White House officials say the debate continues behind the scenes. 

“It’s not over,” said a centrist Democratic policy expert who has urged the administration to raise the retirement age, recalculate cost-of-living adjustments and raise the limit on income subject to payroll taxes.

“I know there are people in the administration who think Social Security should be done and some people who think it shouldn’t,” said this source. “I think the political people in general think it’s a bad idea and the economic and policy people think it’s a good idea.”

Democratic centrists argue that making what they call modest reductions in benefits, such as increasing the retirement age to 68 by 2050 and 69 by 2075, would avert more drastic benefit cuts 20 years in the future.