Clinton Social Security Plan Runs Into Opposition
By: Richard W. Stevenson
The New York Times, January 20, 1999
After a year of trying to reduce the political voltage running through
Social Security and months of maneuvering over who would put a proposal on
the table first, President Clinton stepped up today with the outlines of a
plan to strengthen the system and promptly got clobbered.
Republicans attacked the plan over its reliance on Government
investment in the stock market and for its message that growing Federal
budget surpluses should be allocated to pressing needs other than tax
Mr. Clinton's plan, which would keep intact Social Security's basic
structure and its guaranteed benefit payment, is clearly an opening bid in
what could still be a serious bipartisan effort to insure the retirement
system's long-term financial health.
The plan has elements likely to have substantial appeal, including a
proposal for new savings accounts under which the Government would match a
portion of the money that low- and middle-income workers put aside for
Still, the President's plan left many questions unanswered. It would
extend the solvency of Social Security from 2032 only to 2055, rather than
to 2075, as the retirement system's accounting rules acquire. Mr. Clinton
did not address whether he would support tax increases or benefit cuts to
close the remaining gap, or how he would pay for other proposals he made
today to help elderly women on Social Security and to remove the earnings
restrictions that discourage many retirees from working. And he did not
say what would happen if the projected surpluses never materialized.
But it was clearly an opening move not from the center, as many
Republicans had hoped, but from the left. The plan Mr. Clinton set out -
dedicating the bulk of the surplus to Social Security, seeking higher
returns for the system through Government investment accounts - was
precisely what liberal Democrats have been advocating.
Republicans, said Representative Charles B. Rangel of New York, the
senior Democrat on the House Ways and Means Committee, have "been
asking the President to come forward with a framework, and this is a very
Mr. Clinton specifically ruled out the kinds of mandatory individual
investment accounts, financed out of payroll taxes paid by workers and
their employers, that nearly all Republicans and a few Democrats have been
pushing as the basis for a more market-oriented Social Security system.
And the President's proposal that the Government invest $700 billion in
the market over the next decade and a half was immediately deemed
unacceptable by Republicans and by big corporations uncomfortable with the
notion of having the Government as a shareholder.
They said the Government should under no circumstances own a stake,
even indirectly, in any company. As a shareholder, they said, the
Government would be unable to resist using its influence for partisan or
political ends in the private sector, especially in industries like
"Government-controlled investment in markets is contrary to free
enterprise and it will open the doors to all kinds of mischief involving
government dictates, favoritism and cronyism," said Representative
Bill Archer, the Texas Republican who is chairman of the House Ways and
White House officials said the investment by the Government would be
modest relative to the total size of the stock market - about 4 percent of
the market's total value, less than half of what state and local
governments invest through their pension plans.
Moreover, they said, the Government could invest in index funds, the
track overall market performance, rather than buy and sell individual
stocks. And the investing could be done through an independent agency that
would hire fund managers through competitive bidding, and would be
insulated from political pressure.
White House officials said stocks would never exceed 15 percent of
Social Security's reserves, leaving the system far less exposed to the
risk of market downturns than pension funds.
The plan assumes that the stock market investments would yield an
annual return of 6.75 percent, equivalent to the historical average from
1959 to 1996 (the White House did not include the last two years because
of the market's extraordinary rise). That return would be 3.8 percentage
points higher than the average for Treasury bonds, which is where Social
Security's reserves are invested now.
Mr. Clinton's proposal for voluntary retirement savings accounts, which
would be financed by $500 billion of the surplus over 15 years, was not
technically part of his Social Security package. But it signaled to
Republicans that the White House is aware of their desire, reiterated
today, to make certain that individual investment accounts are a part of
The idea behind the accounts is to give incentives to low- and
middle-income workers to save and invest more. The Government would match
deposits by each individual based on income.
Although they said they had not worked out the details, Administration
officials said they envisioned a plan under which a worker earning $40,000
a year would get a $100 grant to start an account, and then could deposit
up to $600 a year. At that income level, they said, the Government might
match 50 cents on every dollar deposited, or up to $300 in a year. At the
end of the year, the worker would have $1,000 in the account, $400 of it
from the Government.
The biggest and most complex aspect of the White House plan is its
proposal to use $2 trillion of the surplus over the next decade and a half
to bolster Social Security by reducing the national debt.
Economists have long argued that reducing the debt, now about $5.5
trillion, would reduce interest rates, stimulate investment and spur
faster economic growth.
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