Republicans Skeptical of Bush Social Security Plan

By Richard Simon

Los Angeles Times

January 24, 2005

WASHINGTON — A key Senate Republican raised questions Sunday about President Bush's proposal for overhauling Social Security, underscoring the heavy political lifting the president faces in selling even members of his own party on a plan to let younger workers put a portion of their payroll taxes into private investment accounts.

Sen. Olympia J. Snowe of Maine, a self-described moderate Republican who sits on the Senate Finance Committee, said on CNN's "Inside Politics Sunday" that she was "certainly not going to support diverting $2 trillion from Social Security into creating personal savings accounts."

"I don't object to personal savings accounts per se, but that's got to be a part of a larger retirement security picture, as one dimension," she said. "But the existing program, as it has been developed in the last 70 years, provides a stable monthly income that has prevented seniors, almost 50%, from falling into poverty. I don't think we want to erode the principles of that system."

The support of Snowe — a member of the committee that will write the Senate's version of any Social Security legislation — and other Republicans will be crucial for Bush.

But Sunday, two other GOP legislators offered skeptical views of the proposal.

Sen. Lindsey Graham (R-S.C.) said that any solution had to be bipartisan. No Senate Democrats have endorsed Bush's plan. Appearing on "Fox News Sunday," Graham appealed to Democrats and Republicans to find common ground.

"How can you save a system this large that affects this many Americans by having a red state/blue state view of it?" he asked.

Graham has suggested increasing the annual wage cap on Social Security taxes from $90,000 to $200,000 to pay for part of the transition costs for private accounts. But Rep. Bill Thomas (R-Bakersfield), chairman of the House Ways and Means Committee, questioned whether the payroll tax was the best way to finance Social Security.

Thomas, who will be a leader in writing Social Security legislation, reiterated his hope of using Bush's proposal as a starting point to pursue a broader overhaul of Social Security in tandem with another of the president's priorities — reworking the tax code.

"To simply lock ourselves into trench warfare over private accounts or not private accounts, over benefit cuts or not benefit cuts, means we will fail once again in addressing the needs of this society, both the young and the old," Thomas said on NBC's "Meet the Press."

Differing points of view among Republicans indicate the struggle that lies ahead for the administration.

Some Democrats whom the White House was counting on to support the Social Security restructuring — including several who had backed Bush's tax cuts or other initiatives — have come out against the proposal or expressed reservations about the private accounts. Bush needs to win the support of not only Republicans but some Democrats to avoid a filibuster.

"There is very little appetite, even among Republicans, to adopt a proposal that would significantly alter the most popular government program," said Marshall Wittmann, a former Senate GOP staffer now with the centrist Democratic Leadership Council. "It is unlikely that Republicans are willing to go out on a limb, because while the president won't be on the ballot again, they will."

Several congressional Republicans, including Thomas, want any effort to overhaul Social Security to include an examination of whether payroll taxes should replaced with other ways to fund Social Security benefits, such as a value-added tax.

A value-added tax is similar to a sales tax but is levied at every stage of production or distribution of goods and services. The final purchaser pays the full amount of the tax. The 15 members of the European Union impose a value-added tax of at least 15%, though the rate in some countries is higher.

On Sunday, Thomas described the payroll tax as "a solution in the 1940s and the 1950s," but not today. In those days, he noted, the tax was 2%, so doubling it caused few hardships. But now that the rate is 12.4%, any revision upward would be "a job killer."

"The higher the payroll tax, the fewer people are hired," Thomas said. "Why would we make it more difficult to create jobs when jobs are one of the ways we're going to help solve our financing problems over the years?"

Thomas also suggested that Congress might consider whether gender or race should be factors in calculating Social Security benefits in order to deal with "inequities on who you are and how long you live." Women live longer than men, he said, and blue-collar workers frequently retire at a younger age because of the physical demands of their jobs.

Bush, who has made overhauling Social Security a centerpiece of his second term, favors allowing younger workers to voluntarily invest part of their Social Security payroll taxes in the stock market, saying it would give workers an opportunity to earn a fatter retirement nest egg. Additional details are expected when he delivers his State of the Union address Feb. 2.

Democrats say Bush's proposal could jeopardize benefits for current and future retirees; they say the trillion-dollar-plus transition costs also would worsen the federal budget deficit. Because payroll taxes from today's workers finance the benefits for today's retirees, the government would have to borrow as much as $2 trillion over the next decade to replace the money diverted to private accounts.

Snowe said she was concerned that the debate — without a specific proposal from the White House — had created "confusion and fear among seniors."

In a statement issued by her office Friday, she cautioned against acting precipitously "when a consensus hasn't been reached on the level of urgency in addressing a long-term problem."

Social Security is facing trouble because of the nation's aging population, low birthrate and increased life expectancy.

In 2018, the number of retirees collecting benefits will exceed the number of workers paying Social Security taxes.

By 2042, according to the Bush administration — the Congressional Budget Office predicts 2052 — the system is projected to fall short of money to pay all of the promised benefits.