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Bush Plan Greeted With Caution

Congress Prepares To Draft Legislation On Social Security

By Jonathan Weisman
Washington Post Staff Writer
Saturday, April 30, 2005; Page A01

President Bush's embrace of Social Security benefit cuts that would hit 70 percent of future retirees received a wary reception from both parties yesterday as Congress prepared to move ahead with remedies for the retirement system's financial problems.

House leaders vowed to press on with a Social Security bill, starting with hearings that will begin May 12 and culminating with legislation, "probably in early June," said Rep. Bill Thomas (R-Calif.), the Ways and Means chairman, who is likely to be instrumental in crafting the legislation.


David Leonard, who supports President Bush's Social Security plan, made his views known outside the Fairfax County facility where the president tried to drum up support for his proposal among young people. (James A. Parcell -- The Washington Post)

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Social Security

"What the president has done is fundamentally courageous," Thomas said, "and what Republicans will do is follow the president."

Other Republicans were far more reluctant. Some, such as Sen. George Allen (R-Va.), were searching for options that would spare middle-income earners while placing a larger burden on the affluent.

"I wouldn't want to have a proposal that makes it more difficult for people of lower and middle incomes to provide for their retirement security," Allen said in a luncheon with Washington Post reporters and editors.

Others blanched at the traditionally liberal notion that the level of sacrifice should rise with income. "That's an idea that comes from the left typically -- means testing," said Rep. Paul Ryan (R-Wis.), who has co-written Social Security legislation that creates large private accounts and guarantees that investment returns will be lucrative enough to beat currently scheduled benefits.

Sen. John E. Sununu (R-N.H.), Ryan's co-author, said that the pain implicit in Bush's proposal may not be necessary. "The benefit changes the president proposed does underscore the difference between a proposal that allows relatively large accounts and one that doesn't," he said. "By creating significant accounts, our bill doesn't rely on changes in benefits to reach permanent solvency."

In a news conference, Thomas stressed that any bill out of his committee would address far more issues confronting an aging nation than just Social Security and private investment accounts. The committee would probably bolster private pension plans, provide tax incentives for retirement savings and long-term health care, and clamp down on Medicaid coverage for those who are not truly indigent. He endorsed what he called "the president's concept of having an account with your name on it, a personal account, if you will." But he hastened to add that "personal accounts can take a number of forms."

Thomas did, however, appear ready to accept Bush's approach to Social Security benefit cuts, in which promised benefits for the poor would be protected but cuts would fall progressively harder as incomes rise.

"Those who have no other option should be the ones who get the best return out of Social Security," he said. "But those who have other options perhaps don't need to get as much as the current formula suggests."

Between an earlier proposal for personal accounts and a new benefits plan outlined by the president Thursday night at his news conference, the White House has a nearly complete Social Security proposal.

Workers could divert about a third of the 12.4 percent payroll deduction to accounts in which the money could be invested in stocks and bonds. For every dollar diverted, the traditional Social Security benefit would be reduced by a dollar, plus interest equal to 3 percent above inflation.

The solvency gap between benefits promised and Social Security taxes owed would be closed by a formula change, known as progressive indexing, that would pare back benefits for everyone currently making more than $25,000 a year -- 70 percent of Americans.

For those earning the taxable maximum, $90,000, the benefit cuts would be the steepest. Such workers, retiring in 2055, would lose $13,000 of their promised annual benefit, or 37 percent. Those workers would be better off if Social Security were allowed to exhaust its trust fund and then pay out only what it can afford from future payroll taxes.

Middle-income Americans would be hit as well, although not as hard. Workers earning as little as $35,000 a year would lose a quarter of their promised benefits by 2065, although their benefit under progressive indexing would be 11 percent larger than the check Social Security could afford to issue by then.

The plan would not affect Americans currently older than 55.

By endorsing progressive indexing, Bush emphatically ended a debate in the Republican Party between some who said no cuts would be necessary with large accounts and others who said such "large account" plans are a fantasy, said Sen. Lindsey O. Graham (R-S.C.). Now, Graham said, Republicans will have to take the next, far more difficult step of reaching out to Democrats and compromising on the size of personal accounts and the way they are funded.

Democratic leaders yesterday repeated their demand that Bush set aside the private-account idea before they come to the table. "Now the lines are very clearly drawn, and we're going to essentially slug it out with the president and the Republicans," said Rep. Sander M. Levin (D-Mich.), the House Democrats' point man on Social Security.

Indeed, the president's solvency proposal only added more ammunition. "President Bush struck another blow to Americans' wallets last night when he proposed the single biggest cut in Social Security benefits for the middle-class in history," said House Democratic leader Nancy Pelosi (Calif.).

Thomas was no more accommodating, saying there is a seat for Democrats at the bargaining table even as he accused their party of leaving poor seniors destitute when it controlled Congress. "They were the ones who kept these people in poverty," he said.

But behind the scenes, both sides were at least preparing for possible talks. Democratic Senate aides have been working up proposals to address Social Security's financing gap, to be ready in the event that private accounts are dropped, they said. Thomas's expansive approach to legislation is designed in large part to draw Democrats to the table, according to lobbyists close to the Ways and Means Committee.

"The idea is to put all this together and say to the Democrats, 'How can you vote against this?' " said one lobbyist, who spoke on the condition of anonymity because he did not want to jeopardize his access to the committee.


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