Bush Hints at More Aggressive Approach to Economy

President Bush is poised to pursue an aggressive “ownership society” agenda of Social Security privatization, new tax breaks for savings and investment, and additional incentives for home- ownership as cornerstones of his second-term economic initiatives.

Bush hinted as much in his victory speech Wednesday, promising, “We will reform our outmoded tax code. We will strengthen Social Security for the next generation.”

His conservative supporters, meanwhile, rhapsodized about prospects for new tax and budget legislation that they asserted could remake the nation and usher in a generation of GOP dominance.

“The aim of the ownership society is to create a country of stakeholders in the American economy,” said Stephen Moore, president of the Club for Growth, a conservative activist group.

Bush is expected to start rolling out his proposals early next year, with his State of the Union address and budget proposal.

Veterans of Washington’s tax and budget wars expressed doubts about how far the newly reelected president can press his case in the face of widening budget deficits and looming additional costs for, among other things, the war in Iraq. But even they acknowledged that Bush was all but certain to call for substantial changes in Social Security as well as for making the tax cuts of his first term permanent and adding a variety of new breaks.

“New legislation has become almost mandatory in Washington,” said C. Eugene Steuerle, a senior Treasury official in the Reagan administration. “The president is no longer just the nation’s administrator in chief; he’s the policymaker in chief.”

Bush has talked about recasting Social Security to permit workers to divert a portion of their payroll taxes into private retirement accounts since first appearing on the national stage in the late 1990s. But he has shied away from advancing a specific proposal in part because of the daunting financial issues involved in changing the giant retirement security system. Also, almost any privatization plan is likely to produce howls of protest among Democrats.

More generally, the president has engaged in an intricate political minuet with the ownership society agenda pressed upon him by conservative supporters.

Two years ago, he included key elements of the agenda in his budget when he proposed streamlining the hodgepodge of tax incentives for savings into two tax break-heavy arrangements -- a retirement savings account, or RSA, and a lifetime savings account, or LSA. But then he let the proposals die on Capitol Hill in favor of cutting the tax on corporate dividends.

During the last year, he has repeatedly mentioned the ownership society in campaign speeches, but always without potentially controversial details.

“In an ownership society,” he told Republicans at their national convention in September, “more people will own their health plans, and have the confidence of owning a piece of their retirement.”

Lifetime savings accounts would allow Americans to accumulate tax-free funds for almost any purpose, including job training, college tuition, home purchases and retirement. Retirement savings accounts would consolidate and expand existing types of retirement accounts.

Bush is also expected to push for wider use of health savings accounts, tax-advantaged savings vehicles created by last year’s new Medicare law. They encourage people to save for their own routine health costs.

On Social Security, the president endorsed the idea of “allowing younger workers to save some of their taxes in a personal account -- a nest egg you can call your own and the government can never take away.” But, again, he gave no indication of how he would make such a plan work.

All of this is about to change, according to conservative activists close to the administration.

“Bush will want to do one big thing: Social Security reform. That’s the big bang,” predicted Grover Norquist, president of the conservative Americans for Tax Reform.

Bush chief political strategist Karl Rove “has promised that Social Security will be high on the president’s second-term agenda,” added William Niskanen, chairman of the libertarian Cato Institute.

Critics charge that creating private accounts would undermine support for Social Security by confusing what is intended as insurance against destitution in old age with an investment. They say that privatization proposals mask the fact Americans, in agreeing to the accounts, would be taking on risks now borne by the government.

In addition, the critics say, although one of privatization proponents’ chief arguments for overhauling Social Security is that the system is slated to run out of money, the solution of diverting money into private accounts would only make its finances shakier.

Analysts estimate that funding the new accounts for young workers while paying benefits for those now eligible to receive Social Security could require the government to borrow trillions of dollars. The government is expected to run $2.3 trillion in deficits over the next decade, according to the nonpartisan Congressional Budget Office.

Proponents counter that the borrowing would only be temporary and would eventually result in the government having fewer payments to make while individuals would get to keep more of their own money.

In addition to changes in Social Security, Bush is likely to press to make permanent the tax cuts that he won in his first term. The dividend and capital gains tax cuts are scheduled to expire in 2009 and the bulk of the individual cuts in 2011.

The president is also expected to call for the elimination of the inheritance tax and may propose some new incentives for homeownership. But advocates predicted that Bush would push for these in piecemeal fashion.

“Tax reform will come in seven little tax cuts,” Norquist said. “The reason is not that people don’t like the idea of fundamental tax reform. It’s that people don’t trust you to make 27 changes to the tax code and not leave you with the fuzzy end of the lollipop.”

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Times staff writer Doyle McManus contributed to this report.