By Dana Milbank
Washington Post
Thursday, August 23, 2001; Page A02

Members of President Bush's Social Security commission worked yesterday on a plan to peg future retirement benefits to inflation rather than wage growth, a proposal that would cure Social Security's solvency woes but would be condemned by Democrats as a massive cut in benefits.

Commission members, meeting behind closed doors, discussed the indexing change as an alternative to tax increases and more obvious cuts in benefits. One participant in the meeting, while cautioning that there is "a lot of work still to be done" before a recommendation is made, said the reaction to the indexing change yesterday was "promising."

The consideration of the indexing proposal is a sign that the commission, assembled by Bush to propose by year's end a Social Security overhaul that includes private savings accounts, is prepared to recommend far-reaching changes: a cut in the scheduled payout to those who retire after the next 10 years. Commission co-chairman Richard D. Parsons said yesterday that the members have looked at "benefit adjustments downward."

A change in indexing would sharply reduce future benefit levels because wages tend to increase faster than inflation. A report issued this week by the Congressional Research Service found that the indexing change was the only reform it studied that would reduce the system's long-term deficit to zero. However, the report also found that the change would reduce benefits by 12.9 percent in 2030 and 40.8 percent in 2070.

Underscoring the commission's emphasis on deep structural change, Parsons said that the members don't plan to propose using funds outside the projected Social Security surplus for the overhaul. That effectively rules out the "add-on" program -- private accounts to supplement Social Security -- favored by many Democrats. It also may force deeper cuts in future benefits and complicate Bush administration plans to pay down government debt. Parsons, an executive with AOL Time Warner Inc., said the commission hasn't been "looking at the non-Social Security-related surpluses as an option."

Parsons and the other co-chairman, former senator Daniel Patrick Moynihan (D-N.Y.), sought to blunt objections to the partial privatization of Social Security, which each member of the commission supports. They said they would leave untouched the component of the program that benefits the disabled and survivors of beneficiaries. They also repeated Bush's assurances that benefits for current and near retirees would be unaffected.

Part of yesterday's meeting was closed to the public, prompting protests from Democrats. The commission, relying on a new interpretation of a 1972 law that took effect two days before yesterday's meeting, split into two "subcommittees." They are exempt from the Federal Advisory Committee Act, according to the new interpretation by the General Services Administration. The previous regulation, the GSA wrote in its new rule, "states just the opposite."

In a letter to the commission co-chairmen, California Democratic Reps. Robert T. Matsui and Henry A. Waxman said they "are concerned that your decision to divide the commission into two smaller groups in order to have closed-door meetings violates both the letter and the spirit" of the law.

Moynihan dismissed the accusations, saying the members "were trying to talk among ourselves" about the possibilities. Charles F. Howton, a GSA official, said the rule change conforms to court interpretations.

Commission members are eager to position their coming recommendations in the context of the Social Security system's looming woes. In a report issued last month, the commission said the system would stop running surpluses in 2016, and it warned that deep benefit cuts, tax increases or "massive" federal debt were inevitable without changes that include private accounts.

The idea to change indexing is not new. Former House Budget Committee chairman John R. Kasich (R-Ohio) proposed such a plan before he retired from Congress. Moynihan has favored indexing changes. Because wage growth usually outpaces inflation, an index that tracks prices rather than workers' wages would rise at a slower rate. Currently, initial Social Security benefit levels are tied to growth in national wages, then by inflation in later years.

Robert M. Ball, a former Social Security commissioner, said the change would allow future retirees to have the same purchasing power as current retirees, but a far smaller percentage of their working income. "It's very devastating," he said. "The whole object of a retirement system is to replace a part of what you've been living on."

Democrats also charge that such an indexing change disproportionately hurts low-income workers. Because its actuarial benefits are far in the future, it may also require a "bridge loan" to keep Social Security solvent during the transition.

Without some way to trim the cost of future benefits, Bush's plans for Social Security may find themselves on a collision course with his administration's plan to reduce government debt. Mitchell E. Daniels Jr., the White House budget director, told reporters yesterday that the administration anticipated using most of the Social Security surplus to pay down as much national debt as possible over the next decade. "One finds the happy outcome that between $2 trillion and 2.2 trillion can be paid off," he said. "This will pay debt down to levels we haven't seen in a century, or since about 1917."

Staff writer Glenn Kessler contributed

to this report.