05/02/2013 08:01 am ET Updated Dec 06, 2017

Chained CPI: Privatization by Another Name

Recent discussions of President George W. Bush's legacy have mostly glossed over his 2005 push to privatize Social Security.

And it's no wonder. On first glance, Bush's 2005 push to privatize Social Security seems like it was not one of his lasting legacies. Not only did it fail -- it failed in spectacular fashion, taking the idea of privatization and the Bush presidency down with it. Bush's attempt at privatization was as responsible for the Democrats' 2006 sweep of Congress as Hurricane Katrina and the deterioration of the Iraq War.

Nonetheless, nearly a decade after the defeat of privatization per se, Bush's plan has succeeded in shaping the Social Security debate. President Bush's attempt to privatize Social Security paved the way for President Obama to embrace cuts that, in effect, partially privatize the program.

Here's how: By pursuing privatization as a Republican president, Bush moved the entire Social Security policy spectrum to the right. It represented a dramatic shift to the right for the Republican Party. Bush turned explicit privatization into a mainstream Republican position where it had not been before.

As a result, Democrats also moved further to the right on Social Security. They no longer needed to distinguish themselves as defenders of Social Security by opposing all cuts or favoring expanding benefits. Many Democrats began to feel that they could reap the political benefits of championing Social Security merely by declaring their opposition to explicit privatization.

Consider President Obama. In his speech accepting the Democratic nomination for president this past August, the President stated only this about Social Security: "And we will keep the promise of Social Security by taking the responsible steps to strengthen it, not by turning it over to Wall Street." Defending Social Security has been redefined to encompass any position shy of advocating the program's outright elimination.

President Obama's stated openness to Social-Security-cuts-that-are-not-explicit-privatization has been borne out in his aggressive pursuit of benefit cuts. We should not delude ourselves into thinking that the president has embraced cuts with his back to the wall (can that be said of any incumbent president who is reelected by a margin of 126 electoral votes?). He has repeatedly offered to cut Social Security benefits through the chained Consumer Price Index (CPI), a stingier formula for the cost-of-living adjustment that would allow inflation to erode benefits more and more over time. Most recently, the president included the chained CPI in his FY2014 budget.

And there is no denying that Chained CPI is a significant cut in benefits. Even with President Obama's proposed benefit enhancement, which is not likely to pass, chained CPI cuts cumulative Social Security benefits for an average earner by $15,615 at age 95.

Liberal defenders of the President argue that the chained CPI, regardless of what one thinks of it, is fundamentally less harmful than privatizing the program.

In fact, chained CPI amounts to de facto partial privatization, because it forces people to substitute the income they would get from Social Security with private savings. The chained CPI will make middle-class workers choose between living with less income in retirement and putting more money in a risky 401k-type plan with gratuitous fees. The economist Dean Baker estimates that workers already lose $900 billion of private savings to fees over a 10-year period relative to what they would receive under an efficient plan. Chained CPI just puts them in a position where they have to fork over more money.

Meanwhile, lower-income workers, who cannot afford to save more money for retirement, won't even have the option of that bad deal. Chained CPI is guaranteed to reduce their income in old age.

None of this is to say that President Bush is directly responsible for the chained CPI. There are many factors at play. Still, if President Obama signs the chained CPI into law, Bush's attempt to privatize the program will be remembered as a "failure" that influenced policy years after it occurred.

Views expressed are the author's own.

I shared my view of Bush's Social Security legacy with David Shuster on Take Action News last week.