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 cuts.

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 retirement.

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 balanced effort."

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 tobacco.

"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 Means Committee.

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 any deal.

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.