White House Watch

The White House has a new favorite Democrat. President Bush and his aides can't stop talking about a guy named Robert Pozen. The investment executive from Boston has been making the rounds at Washington editorial boards and think-tank forums flacking—what else?—a Social Security plan. Bush launched Pozen into the headlines at his March 16 news conference when, apropos of nothing, he noted that "one of the interesting ideas [on Social Security] was by this fellow—by a Democrat economist, name of Pozen. He came to visit the White House." Two days later, the administration rose in a chorus echoing Pozen's name. Spokesman Scott McClellan reminded the press aboard Air Force One of the man's "useful and constructive" ideas. At two Florida events, Bush brought up the name of the obscure lawyer (not economist) whose ideas he finds "interesting." And, that night, in an interview on cnbc, Dick Cheney made the by-now-obligatory mention of Pozen. A few days later, Alan B. Hubbard, chairman of the White House's National Economic Council, upgraded Bush's view of the Pozen plan from "interesting" to "very attractive."

Pozen has arrived at a critical time for Bush. One of the Social Security debate's side dramas has been the increasingly desperate effort by the White House to find a Democrat to give Bush's privatization plan a patina of bipartisanship. On education reform, Bush had Ted Kennedy. On tax cuts, he had Zell Miller. On the war in Iraq, he had Joe Lieberman. Each one was elevated to rock star status to help Bush pass his agenda. But, on Social Security, all of Bush's high-profile Democratic allies are either retired (John Breaux), defeated (Charlie Stenholm), or dead (Pat Moynihan). After a thorough search, the poor White House has had to resort to Pozen, the "Democrat economist."

Even worse, Pozen's supposed Democratic bona fides cause Washington Dems to chortle. Pozen has spent most of his career bouncing between Wall Street (Fidelity, MFS Investment Management) and academia (NYU, Harvard). He backed John Kerry in 2004 and has donated money to several Democratic campaigns, but he has also given $1,000 to Rob Portman, a conservative Republican and member of the House leadership. Meanwhile, his last two stints in politics were as a member of Bush's Social Security Commission and as an economic adviser to Mitt Romney, the Republican governor of Massachusetts.

Partisan credentials aside, the White House has still achieved one intended effect of embracing Pozen, which is to create an aura of bipartisanship around Bush's proposal. In Washington, the press loves nothing more than a compromise plan, especially on an issue as seemingly intractable as Social Security. In recent coverage of the issue, the notion that Pozen's plan could be the basis for a deal that will rescue Bush has become conventional wisdom. In a valentine to Pozen, The Washington Post's Ruth Marcus dubbed the plan "Bush Smart" and described it as "less radical and more compassionate than the president's." U.S. News & World Report recently declared that the Pozen plan "could become the framework for a final compromise."

But the opposite is true. Rather than a middle-ground alternative that points the way toward a grand bargain, Pozen's well-intentioned ideas actually reveal why there is probably no room for one.


TO UNDERSTAND WHAT Pozen is proposing, you have to take a step back and understand the parameters within which he is operating. Any policy wonk offering his services in the current Social Security debate has to address two overriding issues: First, will your plan have private accounts? Second, how much are you willing to fiddle with taxes and how much with benefits? Bush has answered these questions clearly and repeatedly. The plan he signs into law must have private accounts (carved out of Social Security), and there can be no tax increases, only benefit cuts. From Bush's perspective, the only discussion left to have is about the details—the size of the accounts, the rules that will govern them, and the nature and distribution of the benefit cuts. (Bush has hinted he might be willing to increase the cap on income subject to the Social Security payroll tax.) Meanwhile, the Democrats have answered the first question by unequivocally ruling out private accounts. They have hedged on the second question, but the party's policy elite insists on a balanced mixture of both benefit cuts and tax increases. 

In designing his "compromise" plan, Pozen decided to abide by Bush's parameters: private accounts, benefit cuts, and no tax increases. Before Pozen came along, there was a name for this proposal. It was called "the Bush plan," and it was failing spectacularly. The singular innovation of Pozen's much-hyped proposal is that his benefit cuts would be less draconian for low-income Americans than Bush's would be. Whereas the White House originally wanted to move from full wage indexing to full price indexing—that is, from a formula that uses the increase in wages to determine benefits to one that uses the much slower increase in prices—Pozen would simply blend the two systems. The benefits for low earners would stay pegged to wages, while benefits for high earners would be pegged to prices. Benefits for earners in the middle would be determined by a formula that combines both wage and price indexing. It's called progressive indexing, and, in a nutshell, that is what Pozen, the White House, and some in the press believe will break the Social Security logjam. 

But this is a comically ill-informed reading of the political situation. Democrats believe that private accounts are the thin end of a wedge to destroy Social Security. Asking them to support private accounts in exchange for adding a little progressivity to the Social Security benefits formula is the equivalent of Democrats in 1993 asking the GOP to support Hillarycare in exchange for, say, a small capital gains tax cut. 


And, even if Pozen's indexing plan weren't coupled to private accounts, it would be anathema to liberals. As Jason Furman of the Center on Budget and Policy Priorities explained in a recent analysis, the long-term effect of progressive indexing would be to turn Social Security into a welfare system and erode support for it. While there is now some wealth redistribution inherent in Social Security, there is also a relationship between how much one contributes to Social Security and the benefits one receives upon retirement, a linkage that is the linchpin of the system's near-universal support. Under the Pozen plan, benefits for high and middle earners would, over time, be drastically reduced, while benefits for low earners would hold steady. The entire benefit structure would be flattened, turning it into a wealth-transfer system from rich to poor and shattering the system's political popularity.

These problems flow from the fact that Pozen (and Bush) refuse to seriously consider the possibility of tax changes. They have concentrated all their policy ingenuity on slightly more equitable ways to cut benefits, but they simply ignore how this money is being collected in the first place. If the White House really cared about making Social Security a more progressive system, the easiest way to accomplish that would be to fiddle with taxes rather than benefits. 


AS FOR CONSERVATIVES, the Pozen plan must be particularly maddening. They don't believe that Bush should even be talking about specific benefit cuts. Karl Rove, according to The New York Times, recently pulled Jack Kemp aside at an event and scolded him for organizing a crusade against Bush's price-indexing plan. The ideal plan for conservatives like Kemp would have large private accounts and no meddling with either benefits or taxes—the so-called "free lunch" option. Conservatives are tearing their hair out as they watch Bush negotiate with himself in public, moving from full price indexing (drastic benefit cuts) to progressive price indexing (less drastic benefit cuts) in a few months with no response from Democrats. Even worse, the private accounts in the Pozen plan are half the size of Bush's original plan, so Bush is likely to lose conservative supporters, especially in the House, by embracing Pozen. "Pozen's plan is further to the left than we need to move," says conservative activist Grover Norquist. "Plus, the other challenge is that any benefit cuts are problematic because Bush campaigned in 2000 and 2004 saying he didn't want any benefit cuts." 

So why is Pozen the White House's new best friend? Because Bush is desperate. He is boxed in by his decision to make the inclusion of private accounts and the exclusion of tax increases his two nonnegotiable demands. The only real policy olive branch he can offer Democrats is on the restructuring of benefits, and it's not enough. "This is not anything that's going to be greeted with open arms in the Democratic caucus," says Harry Reid's spokesman, Jim Manley. By embracing Pozen, the White House has essentially rebranded its proposal in a way that alienates both sides: "The new Bush plan—smaller private accounts, less drastic benefit cuts." Not exactly a winning slogan.