Personal Accounts Hit a Wall

It was Day 35 of President Bush’s 60-day Social Security sales blitz, and Radio America talk show host G. Gordon Liddy was worrying aloud.

Now that Bush had convinced many people that Social Security was a Ponzi scheme headed for collapse, Liddy wondered, why was he was having such a hard time selling his proposal to let younger workers open personal investment accounts?

“We’ve only been at this for two months,” said Allan Hubbard, the president’s chief economic advisor and one of 28 administration officials who hit the airwaves this week to talk up restructuring. “It takes time.”

Yet as the clock winds down on Bush’s self-imposed timetable for promoting his restructuring plan, some conservatives fear he has laid the groundwork for what they regard as the worst possible outcome -- pressure for tax increases and benefit cuts to ensure Social Security’s solvency, but a rejection of private accounts as part of the fix.

“There is some worry that just for the sake of having a victory, we’ll get a bill that tosses personal accounts over the side,” said Stephen Moore, president of the Free Enterprise Fund, a conservative advocacy group. “We’ll get a combination of tax increases and benefit reductions that won’t solve what in our opinion is the fundamental problem, that people don’t have individual ownership.”

The president and his aides say they are as committed as ever to personal investment accounts, a central element of the “ownership society” agenda regarded by some GOP strategists as a roadmap for ensuring Republican political domination for decades to come.

They said their sales campaign was proceeding according to plan.

“I think we’re making progress,” Bush told reporters Friday aboard Air Force One after attending the funeral of Pope John Paul II in Rome. “I think slowly but surely, the American people are coming to realize there is a serious problem.

Bush said he understood why some lawmakers were anxious. “It is a tough issue for members [of Congress], for people who’ve got, you know, a relatively short-term horizon, two-year horizon,” he said. “Some of them are worried about elections.”

Bush did not mention personal accounts during his airborne news conference. One of the concerns cited by conservatives is that in his recent public remarks, Bush appears to be placing more emphasis on the retirement system’s solvency than on the merits of personal accounts.

For example, he has called Social Security’s long-term shortfall an “accelerating problem” that lawmakers should address this year, and said he was open to a range of restructuring options. He has begun characterizing personal accounts as “an interesting idea” he hopes they will consider.

Key Republicans in Congress, meanwhile, have suggested coming to terms with Social Security’s solvency problems before wading into the debate over personal private accounts, which by themselves would do little to bridge the projected gap between future payroll tax collections and benefit payouts.

Government accountants estimate Social Security benefits will begin to exceed payroll tax collections in 2017 as baby boomers retire en masse, and the Social Security trust fund will be depleted by 2041. Many experts say it will require some combination of tax increases and benefit reductions to bring the system into balance, and the adjustments will be less severe if made sooner rather than later.

Some of the president’s allies say they are afraid the White House will ultimately conclude personal accounts are not politically viable in the face of public ambivalence and Democratic opposition, but will feel compelled to embrace a restructuring bill that raises taxes and reduces benefits to shore up Social Security’s finances.

“I don’t think they want to go into the midterm elections next year with the Democrats able to say they defended America against the undoing of Social Security,” said one administration advisor who spoke on condition of anonymity. “They’d rather end up with a piece of legislation, even if it’s flawed or not what they wanted.”

Such concerns reflect the mixed signals being sent by opinion polls and other public feedback midway through the administration’s “60 Stops in 60 Days” barnstorming tour to promote restructuring.

Surveys show majorities of Americans now agree with the president that Social Security faces a serious cash-flow problem, and some members of Congress say their constituents are expressing similar sentiments.

“The president has made some headway,” said Senate Finance Committee Chairman Charles E. Grassley (R-Iowa). “People are seeing Social Security as something Congress ought to be dealing with.... That’s quite an accomplishment in the sense of where people were three months ago.”

But surveys also suggest Americans remain ambivalent about Bush’s proposal to give workers born in 1950 or later the option to divert a portion of their Social Security payroll taxes into private accounts containing stock and bond mutual funds.

As envisioned by Bush, the accounts would build up over time, and could be passed on to heirs if a worker died before they were exhausted. But workers who opted to open them would be required to accept an offsetting reduction in their traditional Social Security benefits, on top of any across-the-board benefit changes made to restore the system’s solvency.

Recent polls show varying levels of support for the investment accounts, depending on how they were characterized and whether they were linked to reductions in future benefits. But the polls generally have found little increase in public support, and some suggested the more Americans heard about the president’s approach, the more wary they became.

“One thing this roadshow has achieved is that it’s made the do-nothing approach more difficult to defend,” said the administration advisor. “On the other piece of this -- the role that personal accounts play as part of the solution -- I don’t think we’ve gotten anywhere. In fact I think we’ve probably backslid.”

Bush advisors and allies say the president’s public relations offensive was planned as a multi-step process:

First, convince the public Social Security faces problems, while assuring current retirees and those near retirement that their benefits wouldn’t be affected. Then, generate public support for personal accounts, while prodding Congress to come up with a specific package of tax and benefit changes to restore solvency.

“Things are not as bleak as they seem,” said David John, a Social Security specialist at the conservative Heritage Foundation think tank who is participating in the campaign to promote private accounts.

“There were some people both within the White House and on the Hill who were expecting a sudden, spontaneous outpouring,” John said. “What we’re seeing instead is slowly developing support for personal accounts. It’s going much more slowly than we had hoped, but I think there is progress.”

Times staff writers Richard Simon, Janet Hook and Joel Havemann contributed to this report.