Clinton Details New Retirement Plan
Washington Post Staff Writers
Thursday, April 15, 1999; Page A9
President Clinton yesterday laid out the details of a proposal to give millions of poor and middle-class Americans as much as $300 a year to open their own retirement accounts, a move that could inject new momentum into the stalled debate over how to overhaul the Social Security system.
In setting out for the first time the fine print of how these accounts would work, Clinton sought to draw fresh attention to the ideas he proposed three months ago for salvaging the nation's retirement system, just as Republicans on Capitol Hill are hurrying to disclose their own approaches to Social Security reform.
As they settle back to work this week after a two-week Easter recess, House Republican leaders are preparing to call for Americans to set up their own retirement accounts, using money funneled to them out of the government's future budget surpluses. Meanwhile, an influential bipartisan group of senators is struggling to agree on a different approach to building personal savings that would dip into existing Social Security taxes to help people set aside money for old age.
This springtime fervor for reform, however, does not necessarily improve the odds that Congress will fix the program this year. Policy experts say that this new phase of the Social Security debate may have the perverse effect of exposing the ideological differences on the issue that separate Democrats from Republicans, divide members within each party and make consensus elusive.
"There's a really deep philosophical difference between us," said Rep. John M. Spratt Jr. (S.C.), senior Democrat on the House Budget Committee.
In their broad outlines, the administration's so-called Universal Savings Accounts resemble the private savings that many Republicans favor to begin replacing part of the nation's public retirement system. Unlike most GOP proposals, however, the accounts Clinton envisions would be limited to workers with incomes less than $100,000. And they would not actually be part of the Social Security system.
The president wants to pay for the accounts using about $38 billion a year from future budget surpluses. Part of that money would be used for tax credits that automatically would open savings accounts for eligible Americans.
The government also would match money people saved on their own, up to a point. Both kinds of assistance would go to people with incomes of at least $5,000. Tax credits would phase out for couples who earn more than $80,000, while the matches would in most cases phase out after $100,000.
At yesterday's Rose Garden ceremony, Clinton called his proposal "a complete and comprehensive new plan to help Americans with retirement savings for the 21st century. It is the right way to provide tax relief for the American people, and it is the right way to increase savings and strengthen our economy."
But judging from a swift round of GOP criticism, the proposal's most immediate effect may be to intensify the partisan debate over exactly who deserves the government's help in saving for retirement, and whether private savings should augment -- or replace -- the nation's existing retirement program.
The Social Security system is destined to be on life support by early in the next century. Created during the Depression, when the number of working-age Americans vastly exceeded the number of retirees, the program will be overwhelmed by demographic changes beginning in slightly more than a decade, when the oldest of the nation's 76 million baby boomers reach retirement age.
Even according to more optimistic forecasts last month by the program's trustees, Social Security will begin to spend more money than it takes in through payroll taxes by 2014 and will have exhausted its trust fund by 2034, two years later than the trustees predicted a year ago.
Whether the program will run out of money in 2032 or 2034, however, is not entirely the point. Either way, the crisis remains distant in political terms. Nevertheless, reformers of both parties are glimpsing a window of opportunity: the desire by both Clinton and Republicans to create some legacy beyond impeachment. Furthermore, the advent of large budget surpluses promises to make any approach to reform less difficult.
And there appeared to be agreement, of a sort. Soon after Clinton called in his State of the Union address for a big chunk of projected budget surpluses to be set aside for Social Security, Republicans agreed to his demand. That agreement, however, gave way almost immediately to differences over what should be done with those surplus funds. In general, Democrats advocate a larger continued role for the government, while Republicans prefer to rely more on individual investments.
There is internal dissension as well. The GOP is divided over whether to pay for private accounts by using the budget surplus or by diverting some of the money that employers and workers contribute to the program through payroll taxes. Democrats are divided over whether to cling to the existing program or to embrace some limited form of private accounts.
And both parties are split between members who argue that the program can be fixed through the surplus and stock market investment vs. those who believe that reform will also require painful benefit cuts or tax increases.
If there is any chance of a breakthrough this year, politicians and policy analysts say, it probably will come from one of three sources. One is the House Ways and Means Committee, in the form of a plan that Chairman Bill Archer (R-Tex.) and Rep. E. Clay Shaw Jr. (R-Fla.) have been developing to devote an unspecified amount of budget surpluses to help individuals open retirement accounts.
Alternatively, the impetus could come from a half-dozen senators, largely members of the Finance Committee, who are considering diverting a piece of the payroll tax into private accounts. The group would also try to improve the program's fiscal health through smaller cost-of-living increases for retirees and by making all earnings subject to Social Security taxes.
The third possible source of momentum is Clinton. Although many Democratic legislators support his basic idea of using much of the budget surplus for Social Security, some want Clinton to go further and specify the difficult changes in taxes and benefits they say the program requires.
Staff writer Charles Babington contributed to this report. Staff writer Charles Babington contributed to this report.
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