A key House Republican leader on Social Security said yesterday he has begun exploring ways to finance a restructured Social Security system other than through diverting payroll taxes from current beneficiaries.
The comments by Rep. Jim McCrery (La.), chairman of the Ways and Means subcommittee on Social Security, signaled a significant step away from President Bush's Social Security plans. And they fleshed out a point alluded to by House Ways and Means Chairman Bill Thomas (R-Calif.) on Tuesday: To break the partisan stalemate on Social Security, Republicans may have to finance their proposed personal investment accounts through some mechanism other than the 12.4 percent Social Security tax.
"I commend the chairman for cracking open that discussion," McCrery said in an interview. "I think that's an appropriate discussion for us to have."
Even before Bush unveils his planned restructuring of Social Security, congressional Republicans have hinted that the White House will have to take a new approach if a bipartisan solution is to be reached. Thomas, a powerful committee chairman who could heavily influence the fate of Bush's Social Security effort, strongly suggested Tuesday that the Social Security payroll tax may be inappropriate for financing a new system that includes personal investment accounts.
Seconding Thomas, McCrery said that lawmakers should consider Bush's call to reshape the tax code alongside efforts to change Social Security. That way, McCrery said, entirely new financing systems, such as a national sales tax, could be considered to cover the cost of Social Security changes.
"The president wants to do tax reform," McCrery said. "That means looking at things other than income taxes or payroll taxes, things we haven't even thought about yet."
To Democrats and some Republicans, such talk heralds a fruitful rethinking of a Social Security debate that in past weeks had gotten off to a rancorous start.
The suggestions are "opening up a much more auspicious conversation than the one the president is on," said Peter R. Orszag, a Brookings Institution economist who advises Democratic lawmakers on Social Security.
Republican congressional aides, speaking on the condition of anonymity because Bush has yet to unveil his Social Security plan, largely agreed with Thomas's most provocative assertion: that partisan warfare will quickly render whatever the president produces "a dead horse."
But beyond politics, the central substantive issues have clearly emerged, said Gene Sperling, who chaired the National Economic Council in the Clinton White House. Republicans want to adjust Social Security benefits to bring them in line with the demands of aging baby boomers. But at the same time, they are demanding the creation of personal investment accounts to give Americans more control of some of their tax dollars.
Democrats say they would accept personal investment accounts, but they will not accept diverting taxes now destined to Social Security beneficiaries to fund those accounts, as virtually all payroll taxes are.
"If the price of admission is the diversion of any money out of Social Security, we're not going to be a part of it," said Rep. Benjamin L. Cardin (D-Md.), a specialist on retirement issues.
The answer, Sperling said, is to give Republicans the accounts but finance them through some other source of taxation. Sperling has proposed a 3 percent surcharge on incomes more than $200,000. Rep. Rahm Emanuel (Ill.), the new chairman of the Democratic Congressional Campaign Committee, has suggested financing "universal 401(k) accounts" by maintaining inheritance taxes on the largest estates.
Social Security would remain essentially unchanged as a stable, defined retirement benefit, but benefits could be slightly reduced and taxes slightly raised through a variety of mechanisms to keep it solvent as baby boomers retire.
McCrery called that assessment "right on." In the past few weeks, McCrery said, he has had discussions with policy experts and other lawmakers on the issue of alternative funding sources for personal investment accounts.
"I'm excited," he said.
Some fledgling bipartisan negotiations have begun. Sen. Lindsey O. Graham (R-S.C.) has met with a small group of moderate Democrats to see whether some compromise could be reached. Graham has proposed financing the accounts by raising the maximum income subject to Social Security taxation from $90,000 to $120,000.
