President Bush is privately expressing support for limits on the cost and risk of partially privatizing Social Security, in an effort to mollify nervous Republicans and win over dubious Democrats, according to White House aides and congressional Republicans.
Bush, who plans to make Social Security the centerpiece of tomorrow's State of the Union address, has privately told GOP lawmakers and aides that he would support phasing in changes to the system to keep deficits under control over the next several years and push individuals who opt for private accounts into more conservative investments, such as bonds, as they near retirement to mitigate long-term risks, the sources said.
In addition, Bush has expressed strong support for protecting lower-income workers from the brunt of any future reductions in benefits, a chief concern of Democrats. The Treasury Department is doing a budget analysis to determine how many lower-income Americans could be shielded from benefit cuts necessary to offset the overall cost of creating private accounts, the officials said.
"The administration as a whole is committed to an unprecedented effort to better communicate the proposal," especially its limits on cost and risk, said Rep. Rob Portman (R-Ohio), a top White House adviser.
The president wants to allow younger Americans to divert a third or more of their Social Security payroll taxes into private investment accounts, which would take billions of dollars from the trust fund that finances the nearly 70-year-old retirement and disability program. In order to close that funding gap between benefits promised future retirees and taxes expected to be collected, the president would reduce future Social Security benefits, at least for those who choose to set up private investment accounts.
As a result, the president is scrambling to assure lawmakers -- and voters -- that private accounts can be created without putting the federal budget and people's retirement nest eggs at risk.
With most Democrats opposed to the president's proposal, Bush intends to use the State of the Union speech to begin to detail these ideas, and to argue that new Social Security accounts will be highly regulated and voluntary -- and necessary to keep the system from going bankrupt decades from now.
In his speech, the president will not detail the size of new private accounts or the benefit cuts needed to help offset the revenue losses, according to an administration official briefed on the speech. But Bush will talk more specifically about how the proposed accounts would offer only a few, regulated investments options, much like the Thrift Savings Plan for government employees.
The speech will focus on the policy, but its aim is highly political, Republicans say. After surveying roughly half a dozen Senate Democrats whom the White House considers potential converts to Bush's plan, the president and his congressional allies realize they must limit the budget impact of creating a new system and protect lower-income workers, who rely heavily on Social Security for their retirement income.
One way of holding down short-term costs would be to allow Americans to shift gradually part of their payroll taxes into private accounts. Critics say this would do little to reduce the overall transition cost, which experts say could cost $1 trillion to $2 trillion over the next two decades.
Bush plans to target Senate Democrats facing reelection with speeches and town hall meetings on Thursday and Friday. He suffered a minor political blow yesterday, when the Congressional Budget Office released new projections for Social Security's financial health, pushing forward the year when Social Security benefits begin to exceed Social Security taxes. The CBO now projects that date for 2020, a year later than its earlier assessment and two years earlier than the Social Security Administration's projection.
The new forecast, by Congress's nonpartisan, official budget scorekeeper, highlights the uncertainty about the system's future.
CBO officials attributed the slight improvement to small economic revisions, but CBO Director Douglas Holtz-Eakin was quick to say the changes are economically insignificant.
"Anyone who's making policy based on what they think is a change in these numbers would be making a mistake," he said.
But what is economically significant and what is politically significant are two very different things. Democrats who contend that Bush is exaggerating the need to act and the benefits of his plan pounced on the latest report.
"Today's numbers from the Congressional Budget Office provide further confirmation that Social Security is on solid financial footing for decades to come," said Senate Minority Leader Harry Reid (D-Nev.). "While we do face a long-term challenge that should be addressed, there is no reason to rush to privatize Social Security while making deep cuts in benefits and exploding our national debt."
Indeed, the politics of Social Security are playing a prominent role in shaping the debate. Even before Bush has detailed his plan, almost every Democrat has vowed to oppose it, and a large number of Republicans have expressed deep concerns. This has forced Bush to rethink his strategy and rework his proposal.
MoveOn.org, a liberal group that was highly critical of Bush throughout the 2004 presidential campaign, today will begin airing television ads warning three House members s not to "privatize" Social Security: Reps. Allen Boyd Jr. (D-Fla.), Chris Chocola (R-Ind.), and Jim Gerlach (R-Pa.).
The 2006 elections are nearly two years away, and Chocola is already facing MoveOn.org's ads and a flurry of automated phone calls to his constituents from an unidentified group condemning plans to change the system. Chocola, a second-term lawmaker likely to face a tough reelection in 2006, said the offensive will prove futile.
At the same time, Republican-leaning groups are readying their own ad campaigns. The Business Roundtable, which represents large corporations, is planning to spend $15 million to $20 million on ads and other lobbying efforts in support of Bush's plan, according to spokeswoman Johanna Schneider. And Progress for America, a group with close ties to the White House, will spend $250,000 next week on national cable ads to support the president's efforts.