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Surplus Funds Eyed For Retirement Plan

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Social Security special report

By Amy Goldstein and George Hager
Washington Post Staff Writers
Friday, January 8, 1999; Page A06

The Clinton administration is considering using some of the federal budget surplus to help subsidize the efforts of Americans who want to build their savings for retirement.

While details remain unclear and people familiar with the proposal say several variants are in play, the general idea is to give eligible workers a share of the surplus to create personal investment accounts. Workers might then be able to add their own money, possibly with a government match.

In recent days, senior White House economic advisors have discussed the idea with President Clinton and key Democrats on Capitol Hill. Such savings vehicles would be distinct from the Social Security system but appear likely to become part of an overall administration strategy to try to shore up the economic security of the nation's elderly into the next century.

The plan would also differ from existing government savings incentives such as individual retirement accounts because it would presumably give all eligible workers seed money for their accounts, rather than simply offering a tax break to those who decide to invest.

According to participants in the White House and congressional briefings, the president has not committed to the idea and is considered unlikely to present any detailed plan in either his annual State of the Union Address Jan. 19 or the budget he will present to Congress on Feb. 1.

"There will not be specific proposals in the State of the Union," said Rep. Sander M. Levin (Mich.), one of several House Ways and Means Committee Democrats who heard from White House Chief of Staff John D. Podesta and three other top Clinton aides Wednesday.

How both parties would react to the administration's evolving idea was unclear, but at a time when Clinton has made Social Security reform his main domestic priority for the year, the plan has political advantages.

A plus for Democrats is that it would leave the core Social Security plan intact for the time being, rather than "carving out" a piece of the trust fund to create individual accounts. It would also craft any changes in a way that most benefits the poor.

The proposal may appeal to Republicans because it embraces their desire to establish individual investment accounts. At the same time, however, the plan to soak up a big piece of the budget surplus to fund those accounts could frustrate GOP hopes to use the surplus to pay for an across-the-board tax cut.

Fiscal conservatives might also object to a proposal to tie long-term funding to budget surpluses that could vanish in the next couple of decades. An aide to a conservative Democrat noted critically that the proposal does not solve the long-term problems of Social Security but creates a new government liability.

The idea is the latest strategy to surface as both the White House and congressional Republicans try to find a solution this year to the enormous financial pressures that will bear down on Social Security, once the large baby boom generation begins to retire. The trust fund that is used to pay retirees' benefits is projected to become insolvent in slightly more than three decades.

Staff writer John F. Harris contributed to this report.

© Copyright The Washington Post Company

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