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Big fight looms over Social Security overhaul

President Bush will confront formidable hurdles in Congress as he pursues an overhaul of Social Security, the New Deal program known as the untouchable, third rail of politics. Add soaring budget deficits to the debate, and his effort becomes even more difficult.
/ Source: The Associated Press

President Bush will confront formidable hurdles in Congress as he pursues an overhaul of Social Security, the New Deal program known as the untouchable, third rail of politics. Add soaring budget deficits to the debate, and his effort becomes even more difficult.

Republicans, eyeing the 2006 midterm elections, have made clear they want a heavy political hand from the White House on the issue. Democrats are trying to hold tight in opposition, aided by troubled financing for the project.

“I fully recognize it’s going to require a bipartisan effort to address the issue,” Bush said, ruling out payroll tax increases to help pay for an estimated $2 trillion in start-up costs.

Compounding Bush’s effort is opposition from the largest advocacy group for seniors, AARP, which is gearing up for a major fight.

“I don’t see anything yet that would indicate a bipartisan approach,” said John Rother, legislation and public policy director for AARP, which has 35 million members.

Former Rep. Bill Frenzel, R-Minn., a member of Bush’s 2001 Social Security commission on partial privatization, said Social Security remains “the third rail” of U.S. politics.

That’s because older people vote. Seniors age 60 and older were 24 percent of the electorate in November’s presidential election. Voters age 45 to 59 made up 30 percent. Bush polled slightly ahead of Democratic challenger John Kerry among these age groups, according to Associated Press exit polls.

Senior lobby opposes privatization
Creating investment accounts alone will not fix the future shortfall. Cuts in benefits are required, and investments are expected to make up the losses. AARP wants a wide-ranging debate on improving the system’s finances.

“Private accounts are kind of a diversion,” Rother said. “There are many ways to fix the system. If all this debate is about is private accounts, then it’s going to deteriorate with little chance of actual success in meeting the problem.”

AARP, which was heavily criticized by its members for backing Bush’s Medicare prescription drugs plan, opposes any partial-privatization proposal that diverts money from the current system into accounts.

That’s what Bush wants to do. Though he hasn’t offered specifics, he says younger workers should be allowed, if they choose, to divert a portion of their payroll taxes into accounts. The problem? The 12.4 percent in taxes deducted from paychecks, split by workers and employers, helps fund current retirees benefits.

Bush promises that benefits will not be cut for retirees or those nearing retirement. But he must come up with about $2 trillion, depending on the size of the investment accounts, to continue paying retiree benefits.

“If there’s one issue our members are united on, this is it,” Rother said, adding that AARP will be “very visible and very aggressive” on the debate, expected to start when Congress returns in late January.

GOP looks to Bush to push issue
Republican leaders hope to pass legislation by the end of next year. But former House Ways and Means Committee Chairman Bill Archer, R-Texas, cautioned that a bill will take time, especially with a growing concern about deficits.

“I don’t think Social Security will be as quick in the Congress, and will depend on when the president sends up his recommendations” he said, adding that some lawmakers were politically skittish. “They want the president to take the heat and the resistance and the pushback before they go to work on it,” he said.

Some Senate Republicans proposed raising or removing the limit on income subject to the payroll tax. The maximum level of earnings that can be taxed now is $87,900, and will rise to $90,000 next year.

But Bush’s opposition to raising payroll taxes leaves borrowing as the only real option since further raising the retirement age is not being considered. The administration is considering some creative accounting that will not count borrowed funds in the budget as part of the skyrocketing deficit. Supporters view borrowing as a prepayment, comparing it to paying off a 30-year mortgage loan early.

But that could hurt efforts to get moderate Democrats and some Republicans on board.

Borrowing bugaboo
Continued borrowing is a big concern to Sen. Ben Nelson, D-Neb., who supported Bush’s tax cut packages, which expanded the deficit, said spokesman David DiMartino.

“It would have to be a pretty solid plan of repayment to get back to a balanced budget for the senator to put that much at risk,” DiMartino said.

Though some Democrats were willing to hold their fire to see what Bush proposes, others were critical.

“Ultimately, hiding the truth about benefit cuts or fleecing the public on massive borrowing would have a disastrous effect on the economy, not to mention betray the trust of the American people,” said Rep. Bob Matsui of California, the top Democrat on the Social Security subcommittee.

Asks Frenzel” “Will the Congress be willing to suffer the risk of electrocuting itself at the president’s request?”

“Without him, this will not be possible,” Sen. Lindsey Graham, R-S.C., said of Bush. Graham has proposed letting workers divert two-thirds of their payroll taxes into accounts.

“It will take presidential leadership to make this possible. If you left it up to the Congress, we’re just going to talk to each other.”