As 2004 came to a close, a Dec. 17-19 CNN/USA Today/Gallup poll* showed that 8 in 10 Americans feel it is "extremely important" (40%) or "very important" (42%) for President George W. Bush and Congress to deal with the Social Security issue in the year ahead. Clearly, the public, like the president, also sees Social Security reform as a top public policy priority for 2005.
Does this mean significant reform of the Social Security system is likely in 2005? Will the year see changes that allow workers to invest a part of their Social Security taxes in the stock or bond markets? A closer look at the December poll results provides some essential insight on the issue as the president and Congress grapple with what has been referred to as the "third rail" of politics for its ability to kill the prospects of any candidate who touched it.
Lack of Consensus on Private Investment
Although no formal Social Security reform legislation has been proposed yet, one of the first things the president did after his re-election was suggest that Americans should be able to invest part of their Social Security payments in the stock and/or bond markets. Bush's rationale is that this reform would not only give all working Americans a higher rate of return on the money they save for retirement, but would also provide them with a sense of ownership of at least a small part of the nation's corporate wealth.
The December 17-19 poll shows Americans are evenly split on this proposal -- about half favor it and half are opposed. They are also evenly split on the impact such a Social Security reform would have on them personally, with similar percentages feeling it would help them, and hurt them. Perhaps most importantly, Americans are also evenly split on whether this kind of reform will make the Social Security system stronger in the long run.
Betting on Social Security Reform
The post-election surge in the equity markets suggests that many investors believe the president's re-election will be good for them. Whether any of this increased optimism results from the idea that Bush's proposed Social Security reform could positively affect the equity markets is hard to say -- but it's not beyond belief, considering the tax changes the president achieved during his first term were a plus for investors.
But investors should cautiously consider the prospects for Social Security reform. In my view, this effort is far too reminiscent of the Clinton attempt to reform the healthcare system in the early 1990s. Even today, 87% of Americans believe addressing healthcare costs is important for the president and Congress in 2005, but reform in that area is nowhere in sight as there is still no consensus about what healthcare reform should look like.
The public debate about Social Security reform, meanwhile, has barely begun to take shape. But so far there appears to be little agreement on how to address this key national issue. Reform proposals cover a wide range, with some experts even suggesting the solution is to "means test" Social Security payments.
If the president achieves Social Security reform, it will be a big part of his legacy. But at this point, I wouldn't bet on what shape such reform might take in 2005, if it takes shape at all.
*Results are based on telephone interviews with 1,002 national adults, aged 18 and older, conducted Dec. 17-19, 2004. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3 percentage points.
