President Bush yesterday said he was determined to send a message to Congress, Wall Street and the American people that fixing Social Security's long-term cash shortfall was as...
WASHINGTON President Bush yesterday said he was determined to send a message to Congress, Wall Street and the American people that fixing Social Security’s long-term cash shortfall was as critical as reducing budget deficits and addressing other, more immediate problems.
Bush, wrapping up a two-day economic conference, made an aggressive sales pitch for restructuring the New Deal-era retirement program by letting younger workers open private investment accounts, an approach that would widen the federal deficit for a decade or more before long-term savings began to accrue.
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“The crisis is now,” Bush said, previewing the message he promised to deliver to Congress. “You may not feel it, your constituents may not be overwhelming you with letters demanding a fix, but the crisis is now.”
Bush’s partial-privatization plan was applauded roundly by the conference’s carefully screened participants, but it had the opposite effect on interest groups that announced they would band together to lobby against Bush’s plans.
“The fight against privatizing Social Security will be the fight of our lives,” said George Kourpias, president of the Alliance for Retired Americans. “Privatization will destroy Social Security.”
Many analysts concur that the system faces a serious cash-flow deficit in coming years as members of the “baby boom” generation retire and benefits escalate faster than revenues. But they disagree sharply over the severity of the crisis and the merits of proposed solutions. Social Security’s board of trustees, which comprises three federal officials and three knowledgeable private citizens, estimates that benefits will overtake revenue in 2018.
In 2042, the trustees estimate, Social Security will become “insolvent.” Annual payroll-tax revenue will be the only source of cash, and it will be enough to pay only about 75 percent of promised benefits. The Congressional Budget Office, however, estimates that the fund will be depleted in 2052 10 years later than the trustees’ forecast and predicts that payroll taxes then will cover about 80 percent of benefits.
Although Bush has not endorsed a specific restructuring plan, the broad outlines of his approach have begun to emerge: Current retirees and workers nearing retirement would experience no changes. Workers younger than 55 or so would face a cut in future benefits below levels promised by current law. They would be allowed, but not required, to divert a portion of their payroll taxes, probably about 2 percent, into private investment accounts, which the administration believes will earn a greater return than the government’s Social Security fund.
Although Bush used the conference to trumpet other initiatives, including tax-code revisions, control of health-care costs and litigation reform, he placed the most emphasis on his plan to transform Social Security into a hybrid system featuring a combination of defined-contribution and defined-benefit accounts.
A defined-benefit plan promises the recipient a specific monthly payment, and the payout of a defined-contribution plan depends on how much money an individual contributes. By tackling the problem now, Bush said, “We’ll send a message to the financial markets that we recognize we have an issue with both short-term deficits and the long-term deficits of unfunded liabilities to the entitlement programs.”
Those comments appeared to address one of the principal criticisms of the kind of Social Security overhaul the White House is considering: The government would need to borrow as much as $1 trillion to $2 trillion over the next decade to replace the payroll taxes that would be diverted into private investment accounts.
Administration officials maintain they can borrow that much money without disrupting the economy or putting upward pressure on interest rates because financial markets will recognize that the additional debt is part of a package that will reduce long-term unfunded liabilities.
But some independent economists expressed doubts, saying bond traders already were rattled by the prospect of more deficit spending, which is financed in part by foreign government purchases of Treasury securities.
“If he floats another $2 trillion of American debt, the first board meeting of the ownership society will be held in Beijing because they’re the ones who are buying all the debt,” said William Spriggs of the liberal Economic Policy Institute.
Congressional Budget Office projections were provided by The Washington Post.