Bush is "Tippy toeing" around the "third rail."
Bush Faces Pressure on Social Security
Advocates Stake Out Positions, But President Is Not Ready to Jump Into The Fray
By Jonathan Weisman
Washington Post Staff Writer
Sunday, December 28, 2003; Page A04
Nearly four years after he made Social Security reform a central plank of his first White House campaign, President Bush is still unlikely to detail how he plans to reshape the ailing retirement system before the 2004 election, White House officials and congressional sources say.
But a number of new reform proposals -- including the first offered in the most recent round of debates by prominent Democratic economists -- are emerging as advocates try to advance the debate and coax Bush into action.
"If he doesn't put some meat on the bones, we haven't moved the debate forward in four years, which would be a real disappointment," said Rep. Jim Kolbe (R-Ariz.), a leading proponent of adding personal savings accounts to the Social Security system. "In this case, Congress isn't going to do it unless the president takes a much more activist role."
White House officials say Bush is in no rush to do that. "I know for a fact that we have no specific plan that we are endorsing or supporting," said an administration official close to the issue. "And I would be very surprised if we started signaling we like this plan, we don't like that plan."
That is exactly the advice the White House is receiving from congressional GOP leaders, who have told Bush the party can ill afford a fight on Social Security when it is trying to stave off attacks on its newly enacted Medicare plan, top aides say. "The last thing we want to do is jump into a new entitlement fight," one said.
For supporters of the president's 2000 campaign position, such reluctance is a blow. Bush campaigned on the need to make dramatic changes to the system before the baby boomers retire, including the diversion of some payroll taxes to accounts that individuals could invest in stocks or bonds and redeem when they retired. Now, virtually all Social Security taxes are used immediately to pay benefits for current retirees. The small remaining amount -- the "Social Security surplus" -- is used to finance other government programs.
Instead of specifying how large a diversion he had in mind or how to pay the huge short-term costs of such a move, Bush said he would establish a commission to flesh out the details. But the commission, unable to settle on one plan, issued three. After the Sept. 11, 2001, terrorist attacks, the issue was all but forgotten. Reform supporters say it will reemerge soon as a major campaign theme, and Bush will have little choice but to move beyond the generalities of 2000.
"What I'd like to see is President Bush build upon his past leadership on the issue," said Sen. Lindsey O. Graham (R-S.C.), who discussed Social Security with Bush last month. "We've already had a commission. We've got solutions. Now it's time to enact solutions."
Bush has employed two basic strategies for major policy issues: unveil proposals in great detail, such as his tax cuts of 2001 and 2003, and push hard for their enactment; or express general ideas and allow Congress to take the lead, as he did on the $400 billion Medicare package signed into law Dec. 8.
His allies on Social Security say he will have to employ the first option next year if he hopes to have a mandate from voters to move forward in 2005.
"There will never be [reform] unless you have presidential leadership," said Rep. Charles W. Stenholm (D-Texas). "The president's got to sit on the Republican leadership, say, 'This is what we are going to do,' and say it must be bipartisan. If not, this is going nowhere."
Conservative activists are launching a major effort to persuade Bush to embrace proposals that go far beyond traditional plans for restructuring. The Social Security payroll tax stands at 12.4 percent of incomes up to $87,000, divided equally between employer and employee. Republican plans typically suggest shifting a modest amount of a worker's income -- usually 2 percent -- into investment accounts. The remaining 4.2 percent of payroll taxes and all the employer's share would continue to flow into the Social Security system.
The new proposals, most prominently embodied in a plan by conservative economist Peter J. Ferrara, would shift as much as 6.4 percent of incomes -- or more than half the Social Security revenue stream -- into the proposed individual accounts. Inasmuch as virtually all those taxes now go immediately to current Social Security beneficiaries, any diversion would have to be made up with other money or taken from retirees' pockets.
Ferrara, director of the International Center for Law and Economics, would finance the cost of the diversion -- an estimated $68 trillion over 75 years -- by curbing government spending and borrowing money (adding to the current budget deficit, expected to near $500 billion this year). The plan would guarantee a benefit of at least the size now promised and slash payroll taxes over the long run.
The libertarian Cato Institute is close to unveiling a plan of similar scope, said that think tank's Social Security expert, Michael Tanner. Early next year, Eric Engen, an economist at the American Enterprise Institute, will release another plan, again envisioning larger investment accounts. And conservative activists at Empower America, the Club for Growth, Americans for Tax Reform, the United Seniors Association and American Conservative Union plan to pressure Bush and congressional leaders to be more aggressive in their Social Security thinking, Ferrara said.
"The idea is to coalesce the reform groups around a much larger reform plan, to build so much momentum behind it that that's what they have to adopt," Ferrara said.
Even some advocates of partial Social Security privatization say such plans are reckless and amount to what Stenholm called "the classic free lunch approach." Robert Pozen, a member of Bush's Social Security Commission and now Massachusetts's secretary of economic development, said, "The one thing the president's commission showed is, there is no such thing as no pain. It just doesn't exist."
Meanwhile earlier this month, two prominent Democratic economists and privatization critics unveiled a detailed plan to keep Social Security solvent while maintaining the basic structure of a government pension plan with defined benefits and fixed tax costs. The plan, by Massachusetts Institute of Technology economist Peter A. Diamond and Brookings Institution economist Peter R. Orszag, would require financial sacrifice. It would slowly raise the 12.4 percent payroll tax -- currently divided evenly between employer and employee -- to 13 percent by 2032, 14 percent by 2052 and 15 percent by 2072. Income above the cutoff for Social Security taxation, now $87,000 a year, would face a 3 percent levy.
For anyone younger than 55, promised benefits would be reduced, although they would still be higher in inflation-adjusted dollars than today's benefits, Orszag said.
Some Democrats and Republicans praised Diamond and Orszag for presenting a plan that shows realistic costs of shoring up the system. But few politicians seem ready to endorse it.
"I don't think any Democrat, whoever the nominee is, will take this as their plan," said an aide to former Vermont governor Howard Dean (D), a presidential candidate. "It's a complete loser, politically."
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