Restructuring Social Security is next target for president

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Restructuring Social Security is next target for president

Edwin Chen, Los Angeles Times

December 1, 2003

President Bush is completing plans to campaign next year for a restructuring of Social Security, a potentially divisive drive that he believes is "a winning issue" for Republicans — and for his own legacy.

Even as lawmakers and the president twisted arms to reach agreement on expanding Medicare and providing seniors with prescription-drug coverage, White House aides were working with allies on Capitol Hill to fine-tune a strategy on Social Security.

The United States' bedrock social insurance program, enacted in 1935, is funded by a payroll tax that is expected to pay $470 billion in retirement benefits this year to more than 46 million elderly and disabled Americans. Bush's goal of letting workers divert some of those payroll taxes into private investment accounts faces even more political obstacles than the just-passed Medicare legislation.

"This issue scares older Americans more than the bill that just passed," said Robert Blendon, a Harvard University analyst who specializes in entitlement programs. "This is more powerful, more threatening."

But Bush may enjoy advantages over predecessors who tried to revamp Social Security. His success in overseeing change in Medicare could give weight to his 2000 campaign claim of being a "reformer with results."
And the sense of anxiety over Social Security is mounting as the day of the program's projected insolvency — now estimated at 2042 — draws closer.

"Politically, the safest course would be to say nothing about it; historically, Social Security has been a Democratic issue," said John Pitney, a professor of government at Claremont McKenna College, in Claremont, Calif. "But on the other hand, hard-core opposition to Social Security reform has receded, if only because the day of reckoning is getting closer, and most people in their 40s and 50s realize that some kind of change is necessary."

When he ran for the White House, Bush embraced an overhaul of Social Security as a central plank of his campaign. A few months after taking office, he named a bipartisan 16-member commission to recommend ways to preserve the program. But since then, he has been preoccupied with other matters.

Yet Social Security did not fully recede from Bush's mind. He often tells listeners, especially at Republican fund-raisers such as those in Nevada and Arizona last week, that he does not intend to pass the buck on challenging tasks.

"I came to this office to solve problems, instead of passing them on to future presidents and future generations," Bush told supporters in Las Vegas.

Fiscal conservatives, however, have voiced unhappiness with Bush because of the government's return to massive deficit spending under his watch, with Washington now facing a budget shortfall approaching $500 billion for fiscal year 2004. Such huge deficits loom as a potentially crushing financial burden on future generations.

Bush has justified them on the basis of unavoidable spending for the war on terrorism while arguing that his tax cuts would stimulate the economy and thus generate tax revenues to reduce the deficit.

At the White House, where senior aides have been working to complete Bush's 2004 agenda, deputy communications director Suzy DeFrancis said that "it shouldn't surprise anyone" when the president begins promoting changes in Social Security in the coming months.

There is no dispute that, without major intervention, Social Security is headed for insolvency. The annual cost of its benefits represents about 4.4 percent of the gross domestic product.

But because America is an aging nation, that is projected to rise to 7 percent of the GDP by 2077.

In the beginning, about 40 workers were paying Social Security taxes for every one retiree receiving benefits; today, the ratio is down to three workers per retiree.

To compensate, the Social Security payroll tax has grown from 2 percent to more than 12 percent. Unless new ways are found to finance the program, and given the number of baby boomers — those born between 1946 and 1964 — in the U.S. population, the payroll tax would need to be 18 percent or more if retirees are to continue receiving the same benefits.

At the current rate, Social Security would, in 2018, begin paying out more in benefits than it collects in taxes, and would be insolvent by 2042.
When Bush established the Social Security commission in May 2001, his "guiding principles" included no changes for retirees or near-retirees; no increase in the payroll tax; and the creation of individually controlled, voluntary personal retirement accounts, which dovetails with his vision of an "ownership society."

In October 2002, the panel produced an array of options, including the controversial private investment accounts, which the commissioners predicted would make Social Security solvent and permanently sustainable.

Many Democrats in Congress vociferously oppose the creation of such accounts, saying that such a move toward "privatization" would be a prescription for financial ruin for seniors whose investment choices do not pan out, especially if the stock market experiences another slump.

Working with the White House Office of Legislative Affairs, Sen. Lindsey Graham, R-S.C., drafted and recently introduced a bill to create the personal investment accounts. Without them, he said, Social Security would have to raise payroll taxes by up to 50 percent and cut benefits by 30 percent.

Graham, who campaigned on Social Security reform when he ran for the Senate seat vacated by Strom Thurmond, is circulating a letter on Capitol Hill beseeching fellow lawmakers to avoid using "white-hot rhetoric" against those "who discuss reform options openly and honestly."

"Social Security has often been used as a weapon to achieve short-term political goals," Graham said. "Indeed, both parties seemingly compete to outbid each other in ruling out options for restoring the fiscal health of Social Security.

"It is time for the demagoguery to stop."
But as the Medicare debate in the Senate suggested, there is unlikely to be any such letup in the discussions over Social Security.

As Sen. Edward Kennedy, D-Mass., charged during his unsuccessful filibuster against the GOP-written Medicare bill: "Hold on to your hat. Today, Medicare. Tomorrow, Social Security."