Tuesday, January 25, 2005

White House Looking for Ways to Ease Opposition to Social Security Overhaul

The New York Times
January 25, 2005
White House Looking for Ways to Ease Opposition to Social Security Overhaul

WASHINGTON, Jan. 24 - The Bush administration, facing opposition from Democrats and unease among Republicans over its plan to overhaul Social Security, is looking at new ideas for cutting future benefits that would hit wealthy retirees harder than those in the middle or bottom ranks of wage-earners, people involved in the discussions say.

But despite signs of reluctance from Capitol Hill, the White House remains confident that it can find a consensus on legislation that President Bush can sign into law, administration officials and advisers to Mr. Bush said.

People who have been briefed on White House discussions said the administration was striving to retain as much flexibility as possible both on legislative tactics and policy details. Deliberations are under way within the White House and between the White House and Republican leaders in Congress over how to proceed, they said, but there is no sense of panic or even surprise within the administration.

Over the last few weeks, the White House has seen the debate over Social Security take off, but not always in ways that appear helpful to Mr. Bush's goal of quick action to create personal investment accounts within the retirement system and deal with its long-term financing problems.

Democrats and interest groups like the AARP, the lobbying organization for older Americans, are rallying opposition to Mr. Bush's plans; on Monday, the AARP released a poll showing little public support for personal accounts once the costs and tradeoffs involved in establishing them are made clear. Republicans said the poll was flawed and gave a misleading view of public opinion.

But Republicans are not entirely in sync with the White House, either. Representative Bill Thomas of California, the chairman of the House Ways and Means Committee, said on Sunday that deliberations on Social Security should be broadened to include an overhaul of the tax code, and perhaps other issues, like the long-term-care needs for the elderly. He also suggested a re-examination of the retirement age, but cautioned that that would raise equity issues about gender, race and occupation.

Moderate Republicans like Senator Olympia J. Snowe of Maine have suggested they are unconvinced about the need to create personal accounts.

"They're not upset about this," said one adviser to the White House, speaking on the condition of anonymity because Mr. Bush frowns on public disclosures of internal discussions. "They've raised the topic, and now the topic has momentum. The White House figures it can impact the conversation as it goes ahead."

But White House officials have yet to decide a number of crucial and politically treacherous subjects, most particularly, the issue of cutting benefits to future retirees. Indeed, White House officials are locked in a debate about whether to even offer a detailed proposal to Congress.

The White House has already floated one approach to the issue of future benefits, suggesting that the benefits be based on price increases rather than on the current formula, which is based on economy-wide growth in wages. Since wages tend to rise faster than prices, the effect would be to set benefits at lower levels than promised under current law.

But that approach drew intense criticism from Democrats and some Republicans. Administration officials are now reviewing an idea called "progressive indexation." The idea is in effect a compromise that would allow initial benefits for low-income workers to rise in line with their wages but would peg benefits for affluent workers to the inflation rate.

The effect would be to direct relatively more benefits to lower-income people than to higher-income people.

White House officials say that future benefits have to be reduced in order to close a long-term financial gap that the government estimates at roughly $3.7 trillion over the next 75 years.

Shifting from wage indexing to price indexing would in itself come close to eliminating the projected shortfall.

But such a change would mean Social Security would steadily replace less and less of a person's pre-retirement income.

The new approach would help protect people at the lowest rungs of the income scale. But it would not save nearly as much money. By one estimate, it would close about two-thirds of the projected shortfall.

"They are trying to make the proposal more friendly to low-income workers," said David John, a senior analyst at the Heritage Foundation, a conservative research organization. "The major problem is that if you don't do full price-indexing you don't get the full savings and you don't completely solve the problem."

The alternative idea was proposed by Robert Pozen, an investment executive in Boston who was a member of Mr. Bush's advisory commission on Social Security in 2001.

White House and Treasury officials are studying computer analyses of that idea, Mr. Pozen said in an interview last week.

Michael Tanner, director of health and retirement issues at the Cato Institute, said White House officials were studying the idea as a possible solution but had not made any final decisions.

"We're all running a lot of different numbers," said Representative Paul D. Ryan, Republican of Wisconsin, who has sponsored legislation that would create private investment accounts.

"I have the numbers in my briefcase right now," Mr. Ryan said last Friday in a telephone interview from Wisconsin. But, he added, "there are a lot of different ways of doing this."