WASHINGTON – Fresh from re-election, President Bush is dusting off an ambitious proposal to overhaul Social Security, a controversial idea that had been shelved because of politics and the administration’s focus on tax cuts and terrorism.
Bush envisions a framework that would partially privatize Social Security with personal investment accounts, similar to 401(k) plans, that would be voluntary for younger workers.
American workers currently pay 6.2 percent of their taxable income into Social Security, and employers match that amount. A starting point for an overhaul is a plan proposed by a presidential commission in 2001 that would divert 2 percent into private accounts. The remaining 4.2 percent – and the taxes employers pay – would go into the system, helping fund benefits for current retirees. That leaves an estimated shortfall of about $2 trillion to continue funding benefits for current retirees.
Bush said his commission, headed by the late Democratic Sen. Patrick Moynihan of New York, provided “a good blueprint.” The commission had been asked to propose a plan for establishing personal investment accounts.
For future retirees, base benefits would be cut by tying them to inflation instead of wage growth, with stock market gains assumed to make up any shortfall. The concept gained support in the stock market boom of the late 1990s.
Bush has not said how the $2 trillion transition costs would be funded, nor did his commission. Record deficits, Bush’s desire to make his five rounds of tax cuts permanent and the rising cost of war in Iraq and Afghanistan are major obstacles.
Republicans say doing nothing is worse. “There are a lot of things you could do, but none of them are without some sacrifice,” said Sen. Lindsey Graham, R-S.C.
Some Democrats have pledged to fight Bush’s attempts to privatize the New Deal program known as the untouchable, third rail of politics.
To fund accounts, “we’re talking about an infusion of $2 trillion in revenues to maintain current benefits, and we don’t have that money now,” said Rep. Bob Matsui of California, top Democrat on the House Ways and Means Social Security subcommittee.
Matsui said he is eager to see a “fiscally responsible” plan from the Bush administration. He also is skeptical of costs and funding options, citing overruns on the Medicare prescription drug plan that were hidden from Congress.
Democrats argue that the system can be altered, not demolished, to improve future funding. “It doesn’t require a radical adjustment like privatization,” Matsui said. Shoring up the current system would require a combination of tax increases, benefit cuts for future retirees and raising the retirement age.
Supporters of accounts say Democrats can no longer criticize partial privatization without offering their own plan to deal with Social Security’s $3.7 trillion, 75-year shortfall. As more baby boomers retire, the system will start paying out in benefits more than it collects in taxes in 2018.
“For Democrats, the old scare tactic message is not winning them votes,” said Derrick Max, executive director of the Alliance for Worker Retirement Security, a business-backed group lobbying for accounts.
Democratic Sen. John Kerry tried to make Social Security an issue during the 2004 presidential campaign. “I will not privatize it. I will not cut the benefits,” he had vowed.
Bush said Democratic attacks on GOP Social Security proposals are not new. “You’ll hear the same rhetoric you hear every campaign,” he said at one point.
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