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Thursday, Nov. 11, 2004

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.

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  A starting point is a plan proposed by a presidential commission in 2001 to divert 2 percent of workers' payroll taxes into private accounts. The remaining 4.2 percent -- and the payroll 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.

Graham's plan would let workers divert into accounts 4 percent of their payroll taxes and spreads transition costs over 10-15 years. He said the yearly price tag of $80 billion to $100 billion could be funded by closing tax loopholes, cutting pork barrel spending, borrowing money or temporarily raising the payroll tax cap on earnings.

"No idea is off the table," Graham said. He thinks Republicans have about a six-month political window before Bush's election momentum starts to fade and attention turns to midterm elections.

Bush Allies Defeated

Any plan needs Democratic support. But some of Bush's biggest Democratic allies on Social Security privatization won't be around in January. Texas Rep. Charlie Stenholm was defeated last week after districts were redrawn by the Legislature. And Sen. John Breaux of Louisiana is retiring.

Other 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.

"If they put a plan out there and try to pass it and it's not vetted instantly and it doesn't add up, I will not allow this thing to go," he said.

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.

A campaign promise in 2000, Bush created his controversial Social Security commission of Republicans and Democrats, all whom supported privatizing the system to some degree. Under political pressure, the commission proposed three plans instead of one, none of which Bush endorsed. Only one was considered viable, while the others provided varying degrees of political cover to the administration and account supporters.

The whole idea was shelved after the 2001 terrorist attacks. Most Republicans ran away from the issue in the midterm 2002 elections, with the party advising them to avoid saying "privatization."

Democrat 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.

Graham says bringing Republicans on board, let alone Democrats, will be a challenge. "I really think you're going to be surprised about how much Republican pushback you will find," he said.

Republicans and pro-privatization groups are optimistic. Max said Bush had "some amount of mandate" on the issue.

Opponents disagree. "This was an election focused on homeland security, and not Social Security," said Barbara Kennelly, president of the National Committee to Preserve Social Security and Medicare, which opposes accounts.

© 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed.

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