Gore to Offer Social Security Supplement

Vice President Al Gore, moving to outflank Texas Gov. George W. Bush in the Social Security debate, will propose an ambitious retirement savings plan that would offer financial help to working-class and middle-income families who now find it difficult to save for retirement.

The plan would offer a married couple as much as $3,000 a year in tax credits to open a private retirement savings account. It would be another source of retirement income in addition to Social Security benefits. Financing the proposal would cost the federal government up to $200 billion over 10 years.

Bush, the presumptive Republican presidential nominee, has made Social Security a hot issue in the campaign with his suggestion that workers be allowed to keep a portion of the Social Security payroll taxes and invest the money in private retirement accounts.

Making an Appeal to Baby Boomers

Gore apparently is trying to trump Bush in winning support from the hordes of aging baby boomers, saying he will give them a chance to put away more money for retirement in addition to Social Security.

Dubbed “retirement savings-plus,” the proposed account is expected to be offered by the vice president during a speech Tuesday.

The Gore plan goes beyond the retirement accounts proposed by President Clinton last year but ignored by the Republican Congress. Gore would provide a bigger government subsidy to help moderate-income families open the accounts.

In a major departure from the Clinton plan, in which the government would have managed the accounts, Gore’s proposal would allow individuals to place their money in mutual funds offered by private companies.

This private-sector approach is aimed at appealing to voters attracted to Bush’s private-investment proposal.

Both candidates are promising to commit huge future government resources to finance the retirement of their own generation--the baby boomers born in the years 1946 through 1964. There are 34 million Americans over 65 today. Their numbers will swell to 76 million by 2030, when all of the boomers will have become eligible for Social Security and Medicare.

If the budget surpluses don’t materialize, the promises may be hard to keep.

Under Gore’s proposal, the government would make a contribution to encourage workers to save. For example, a person who earns less than $15,000 a year would receive a $3 match from the government for every $1 contributed.

The maximum size of the account would be $2,000 a year, or $4,000 for a married couple.

With a taxpayer making a $500 contribution of her own, she would get a $1,500 tax credit from the government. The credit would be refundable--meaning that if the taxpayer didn’t earn enough to pay $1,500 in taxes, the money would nevertheless be placed in the account. The maximum size of the account would be $2,000, or $4,000 for a married couple. For those couples who earn from $30,000 to $60,000 a year, there would be a dollar-for-dollar match, with the government contributing up to $1,000.

For those couples who earn more than $60,000 and up to $100,000 annually, the match would be $1 for $3 contributed by the taxpayer. The individual contributes $1,500 and gets a $500 tax credit. The new benefit would not be available to households with incomes over $100,000.

After all deductions and credits, an individual in the lowest income group could get a $2,000 savings account using $720 of his own money--the rest would come from the taxpayers.

The Gore advisors said they did not have a precise estimate of how many new accounts would be opened, but they said 20% of workers now have individual retirement accounts.

Workers could open the new savings-plus accounts in addition to having IRAs. The money could be withdrawn to pay for college costs, the purchase of a new home or catastrophic medical costs.

“We are trying to address a real concern, the lack of savings among low- and middle-income Americans,” a Gore advisor said.

Bush has offered few details of his plan, but it is likely to allow the diversion of 2 percentage points of the 12.4% in payroll taxes paid by workers and their employers on salaries up to $76,200 a year. The money would be invested in private accounts, probably mutual funds. If stocks follow historic patterns of earnings, the hope is that workers would get more than they now can expect to earn from Social Security.

But Social Security pays out money in benefits as it is collected in taxes from workers. Money switched to private accounts would have to be replaced, and critics of the Bush plan say it could consume as much as $1 trillion from future surpluses.

The Gore plan will likely be criticized for creating a costly new budget entitlement--a promise by the federal government to pay money into the accounts of anyone who qualifies.

Showing No Desire to Anger Voters

Neither Gore nor Bush is entertaining seriously any steps for Social Security that might be unpopular with voters, such as raising the retirement age, trimming the annual cost-of-living increase or raising the tax rate or the wage base on which taxes are levied. But a potential fiscal crisis is in the future--2037 is the year when the Social Security trust fund is projected to become insolvent. Payroll taxes will be sufficient to pay only 72% of benefits promised under current law.

Gore and Bush “right now are promising a free lunch to the public,” said Robert Bixby, executive director of the Concord Coalition, a bipartisan group focusing on budget and entitlement issues.

“They may be locking themselves into saying [changes] can be painless,” Bixby said. “This makes it much more difficult when one of them is elected president to enact any meaningful solutions.”