President Bush said today that he was determined to send a message to Congress, Wall Street and the American people that fixing Social Security's long-term cash shortfall was as critical as reducing budget deficits and addressing more immediate problems.
Wrapping up a two-day economic conference, Bush made an aggressive sales pitch for restructuring the New Deal retirement program by letting younger workers open private investment accounts, an approach that would widen the federal deficit for a decade or longer before long-term savings began to accrue.
"The crisis is now," Bush said, previewing the message he promised to deliver to Congress in January. "You may not feel it, your constituents may not be overwhelming you with letters demanding a fix, but the crisis is now."
Bush's partial privatization plan was roundly applauded by the carefully screened participants in the economic conference, but it had the opposite effect on interest groups that announced they would lobby together against Bush's plans.
"The fight against privatizing Social Security will be the fight of our lives," said George Kourpias, president of the Alliance for Retired Americans, one of several groups that said they were not invited to the White House conference. "Privatization will destroy Social Security," he said.
The exchanges set the stage for what is expected to be one of the most contentious issues confronting next year's Congress. Bush has elevated Social Security restructuring to the top of his domestic policy agenda, and the issue has become an ideological battleground between defenders of the traditional government safety net and advocates of the administration's "ownership society" agenda.
Many analysts concur that the Social Security system faces a serious cash flow deficit as baby boomers begin to retire and benefits escalate faster than revenues. But they disagree sharply over the severity of the crisis and the merits of proposals for eliminating the shortfall.
Although Bush has not endorsed a specific plan, the broad outlines of his approach have begun to emerge: Current retirees and workers nearing retirement would face no changes. Workers under the age of 55 or so would face a cut in benefits below the levels now promised. They would be allowed — but not required — to divert a portion of their payroll taxes into private investment accounts, which the administration believes would earn a greater return than Social Security contributions.
Although Bush used the two-day economic conference to trumpet other domestic initiatives, including tax code restructuring, healthcare cost control and litigation reform, he placed the most emphasis on his plan to transform Social Security into a hybrid system featuring a combination of defined contribution and defined benefit accounts.
By tackling the problem now, Bush said during a morning panel discussion, "we'll send a message to the financial markets that we recognize we have an issue with both short-term deficits and the long-term deficits of unfunded liabilities to the entitlement programs."
Those comments appeared to address one of the principal criticisms of the kind of Social Security overhaul the White House is considering: The government would need to borrow as much as $1 trillion to $2 trillion over the next decade to replace the payroll taxes that would be diverted into private investment accounts, even if the system eventually came out ahead.
Administration officials maintain they can borrow that much money without disrupting the economy or putting upward pressure on interest rates because financial markets would recognize that the additional debt is part of a package that will reduce the government's long-term unfunded liabilities.
But some independent economists expressed doubts, saying bond traders are already rattled by the prospect of more deficit spending, which is financed in part by foreign government purchases of Treasury securities.
"If he floats another $2 trillion of American debt, the first board meeting of the ownership society will be held in Beijing because they're the ones who are buying all the debt," said William Spriggs, senior fellow at the liberal Economic Policy Institute.
Although White House officials quarrel with the term "privatization," supporters of the president's plan made it clear during the forum that they are advocating a fundamental shift in Social Security that would mirror the changes affecting retirement programs in the private sector.
Richard Parsons, CEO of Time Warner and co-chairman of a Social Security reform commission appointed by Bush, said the government needs to begin making the same transition as corporations that have begun replacing traditional defined-benefit pension plans with newer defined-contribution 401(k) accounts.
"We have to gradually move from a system that is on a pay-as-you-go basis to a system that is on a fund-as-you-go basis," Parsons said. "This is exactly what's happened in the business world."
Opponents of private accounts contend that is exactly what should not happen with Social Security, arguing that the venerable retirement program was designed to provide elderly Americans with a guaranteed source of retirement income, not to serve as a vehicle for speculative investments.
"They can't afford to see their futures raffled off in a risky stock market gamble," he said.
Bond's organization said it was joining forces with the AFL-CIO, the National Organization for Women and other groups to mount a campaign to fight partial privatization. One of the nation's most formidable lobbing forces, the AARP, has already declared its opposition.
The groups acknowledged that Social Security faced a long-term funding shortfall, but said it could be fixed with some combination of modest payroll tax increases, benefit reductions and other adjustments.
"Social Security is not facing a crisis," said Roger Hickey, director of the newly formed Campaign for America's Future. The system's future shortfalls, he added, were smaller than the projected cost of Bush's proposal to make permanent his previous tax cuts for the wealthiest 1% of Americans.