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Republicans Float Ideas for Social Security

Hagel Proposing Deficit-Financed Personal Accounts

By Charles Babington and Jim VandeHei
Washington Post Staff Writers
Sunday, March 6, 2005; Page A06

A handful of Republican lawmakers are pushing alternatives to President Bush's plan to change Social Security, broadening the debate over the administration's top domestic priority and hoping to soften Democratic opposition, which has been unyielding so far.

The latest to jump in is Sen. Chuck Hagel (R-Neb.), who tomorrow will propose reducing Social Security benefits for some retirees while funding individual accounts through government borrowing. Hagel joins Sen. Lindsey O. Graham (R-S.C.) in offering a multifaceted alternative to the White House plan just as the president has embarked on a 60-day drive to sell his program.

Hagel and other GOP senators are putting forward variations on President Bush's Social Security plan in hopes of winning some Democratic support. (Alex Wong -- Nbc Via AP)

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Social Security

All three proposals call for creating individual accounts through which younger workers could divert some of their payroll taxes into stock and bond funds that would follow them into retirement. Graham would fund the accounts by raising the wage cap for Social Security contributions; Hagel would borrow the needed money; and Bush has said he is open to several possibilities.

Sen. Robert F. Bennett (R-Utah) and a few other GOP lawmakers also have suggested Social Security changes, but Graham and Hagel are emerging as the most outspoken and assertive. In some ways they are emulating Sen. John McCain (R-Ariz.), whose relentless push for campaign finance revisions helped him earn a national reputation and become an independent source of GOP influence, sometimes supporting the president, sometimes not. McCain challenged Bush for the 2000 presidential nomination, and Hagel is eyeing a bid in 2008.

The Social Security debate, dominated so far by Bush and Democratic critics, may eventually be tipped one way or the other by the small band of senators from both parties with reputations for bucking party leaders or cutting deals, White House officials and key lawmakers say. That group, which includes Hagel, Graham and Sen. Ben Nelson (D-Neb.), could play a pivotal role in determining whether the complex entitlement program for retirees and disabled workers is restructured, tweaked or left alone.

"It is the centrists who bridge the gap," Nelson said. "The potential for a deal is there. No doubt about it."

Hagel's Plan

Hagel's plan would affect Americans now younger than 45 (whereas Bush's would affect those younger than 55), and apply only to retirement benefits, not to survivor and disability benefits. To strengthen Social Security's long-term financing, starting in 2023 Hagel would: raise the retirement age, now 67, to 68; allow those who retire at 62 to draw 63 percent of full benefits rather than 70 percent; and slow the growth of benefits by accounting for longer life expectancies.

He would increase the deficit to pay the transition costs of creating voluntary personal accounts. Like Bush and Graham, Hagel envisions workers contributing as much as 4 percent of their wages to such accounts, via payroll taxes. Workers now pay 6.2 percent of their first $90,000 in annual wages to Social Security. Employers match the payments, making the total contribution 12.4 percent.

In an interview Friday, Hagel defended his proposal to borrow the money needed to start personal accounts. With Social Security facing a $3.7 trillion shortfall over 75 years, he said, it makes sense to shift some of that debt forward to kick off a program that will make the program healthier in the long run.

"I'm not putting America in any more debt than we're already in," he said. "I spread it out." Hagel, the oldest of four boys whose family relied heavily on Social Security after their father died when they were young, called his plan "a pretty rational, common-sense approach."

Graham's Plan

Graham, whose sister was 13 when their parents died, said he also knows the importance of Social Security. His plan would reduce the payroll tax rate from the current 12.4 percent to perhaps 11.9 percent. He would temporarily raise the $90,000 cap on wages subject to Social Security taxes to about $200,000. Over 10 years, Graham says, that would generate about $1 trillion, approximately the "transition cost" of creating personal accounts.

He wants some form of "progressive indexing" of retirement benefits. Higher-paid workers would have their benefits tied to inflation, which would produce lower benefits than those generated by the current link to wages. (Wages rise more sharply than prices). Lower-paid workers -- those making less than $30,000 or so -- would continue to have benefits tied to wages.

"If you want to save Social Security, you've got to make some hard choices," Graham said in an interview Friday. Democrats will not agree to personal accounts financed by huge deficits, he said, and conservatives must be willing to strengthen the safety net for poor Americans.

Bennett's Plan

Drawing less publicity than Hagel's and Graham's plans is a proposal being floated by Bennett, seen as more of a dealmaker than a maverick. It calls for a sliding scale of benefits, based on the retiree's income level. Americans in the top 1 percent income bracket would have their benefits tied to inflation. Those in the lower third of the income range would continue to have benefits tied to wage levels. Everyone in between would have benefits linked to a variable blend of wage and price increases, with higher-income retiree benefits tied more closely to inflation, and lower-income benefits tied more closely to wages.

"That's a benefit cut," Bennett acknowledges, but one that he says is justified to put Social Security on firmer ground.

Among Democrats, Nelson and Sens. Thomas R. Carper (Del.) and Mary Landrieu (La.) are part of a bipartisan group seeking a compromise. So far, they have resisted pressure from party leaders to rule out cutting a deal with Bush.

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