2 Seniors Programs Show How Bush and Gore Differ

For years, both parties have been so burned by proposals to change Social Security or Medicare that the programs have earned a reputation as the “third rail of American politics”--fatal to the touch for even the most adroit politician.

But this year’s presidential campaign is challenging that assumption, offering an unexpectedly pointed debate on the future of the two massive federal programs for the elderly.

In a race where differences between Democrat Al Gore and Republican George W. Bush are blurring on issues such as crime and education, their argument over Social Security and Medicare is emerging as one of the key contrasts between them.

Bush, who is expected to further detail his thinking soon, promises a fundamental restructuring of both programs to increase individual choice and potentially reduce their cost over time.

At every turn, Gore denounces Bush’s ideas as a threat to the collective safety net these programs are designed to provide senior citizens. Instead, the vice president asserts that the burgeoning federal surplus will allow Washington to stabilize both programs for decades without major changes. Indeed, Gore contends that enough money will be available to expand both programs with new benefits.

Gore clearly believes Bush is vulnerable to attack on these issues; on Monday in New York, the vice president challenged him to debate their competing Social Security plans before the end of May.

Their dispute over Social Security and Medicare is quickly becoming the core of the two men’s tussle over how to use the anticipated budget surpluses. Gore maintains that the programs should have first call on the money--to the point where even some critics in his own party worry that this commitment could squeeze other priorities, such as health care for the uninsured.

Bush, meanwhile, would not set aside nearly as much funding for Social Security and Medicare as Gore--largely because the Texas governor is proposing a tax cut he estimates would cost $1.3 trillion over the next decade.

“The Gore approach to budget surpluses is much more prudent; the Bush approach to structural reforms of the entitlement programs is more promising,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan fiscal watchdog group. “They have set up a good dichotomy that people can look at.”

Bush’s Position Could Be Risky

As the candidates argue these points, they may have set in motion one of the campaign’s principal dynamics. Bush, by aggressively criticizing President Clinton and Gore for failing to advance reform proposals, is betting that fear over the two programs’ long-term viability creates a critical mass for change, particularly on Social Security. That could prove one of the most fateful political gambles.

“The environment is there for a discussion on this issue,” said GOP pollster Linda DiVall. “But there is a lot of risk, obviously.”

The debate’s intensity is, in one respect, surprising: Neither Social Security, which provides retirement and disability benefits to 45 million Americans, nor Medicare, which furnishes health care for 39 million seniors, faces an imminent financial crisis.

But analysts agree both programs will face increasing financial strain as baby boomers move from blue jeans to gray hair--the number of Medicare beneficiaries, for example, is expected to double between now and 2030. Exactly how much strain, though, remains the main point of contention.

Gore Sees No Need for Big Changes

Gore reflects a widespread Democratic view that the government’s improved fiscal position will allow it to absorb rising costs without significantly cutting benefits or redesigning either program. “We are not in a situation where we are required by desperation to make structural changes,” said Urban Institute senior fellow Marilyn Moon, who served until recently as a Social Security trustee.

Bush’s position, in contrast, exemplifies the consensus conservative view--shared even by many centrist Democrats--that the rising costs of these programs will overwhelm the federal budget and ultimately demand large benefit reductions if changes are not made now.

Operating on that belief, Bush has embraced two ambitious reform proposals that share a common theme--shifting control from government to individuals.

On Medicare, Bush has endorsed a bipartisan plan drafted by Sens. John B. Breaux (D-La.) and Bill Frist (R-Tenn.) that would revamp the program.

Currently, the vast majority of Medicare recipients receive care under a traditional fee-for-service program in which Washington directly compensates doctors and hospitals. Breaux and Frist say that, instead, Medicare should provide seniors a fixed sum (with low-income seniors receiving extra amounts) to purchase private insurance from a list of approved plans. The more affluent could use their own money to purchase more expensive care.

The plan would also provide subsidies to help seniors obtain prescription drug coverage (though the proposal is much more limited than the competing plan Clinton and Gore have proposed).

The Breaux-Frist approach aims to save money by inspiring greater competition among insurers and also by raising premiums for seniors who want to remain in the conventional fee-for-service program. Bush maintains this plan would “empower our seniors to . . . make choices for themselves”; he denounces the existing Medicare system as inefficient and antiquated.

But the administration says the plan would result in sharply higher premiums and create what Gore derides as a “two-track system” that provides the affluent with better care.

This reform plan has only begun to be debated in Washington, and even Breaux calls it a “huge risk” for Bush to advocate in a presidential campaign. By comparison, more groundwork has been laid on Social Security reform.

As the numbers of Americans investing in the stock market has soared, polls have found growing receptivity to providing workers their own investment accounts under Social Security. And while most of the concept’s backers are still Republicans, the idea has established a beachhead among centrist Democrats such as Breaux and Nebraska Sen. Bob Kerrey.

Without offering details, Bush repeatedly has said he wants to allow workers to divert part of their payroll tax--probably around two percentage points of the 12.4% workers and employers now pay in Social Security taxes--into private accounts they could invest themselves. Advocates say that would give workers a more secure retirement by allowing them to benefit from the stock market’s growth over time.

Most privatization plans envision that as retirees accumulate more assets in their private accounts, Washington would reduce the core Social Security benefit; the goal is to provide retirees at least as much income as they would receive under the current system, while reducing long-term financial pressure on Social Security. Aides say Bush as president would probably endorse such an approach.

Most Democrats still fiercely oppose the personal account idea, none more so than Gore, who derides it as “stock market roulette.” One objection is that private accounts could drain money from retirees in administrative costs to brokers. The larger complaint is that retirees could be left short of funds if their investments go bad; in effect, critics like Gore say, the plan shifts risk from government to individuals.

In an interview, Gore warned that, alternately, the government could face a vast and unpredictable fiscal risk if it agrees to offset losses for workers who make bad investments. “I’m all for policies that work with the market instead of against it; I’m all for public-private synergy,” Gore said. “But I honestly think that to a great extent Social Security is the exception that proves the rule.”

Another challenge for privatization plans is finding a funding source. Under the existing system, the payroll taxes Social Security takes in are immediately paid out in benefits to retirees. Since a privatization scheme would divert part of that revenue into investment accounts, a key question has been how to offset the loss. For the immediate future, one obvious answer presents itself: Through 2015, Social Security is anticipated to take in more in payroll taxes than it pays out in benefits, leaving a surplus that could be used to fund the personal accounts.

Indeed, Bush aides say he has decided to pay for the accounts--which would cost about $85 billion a year initially and grow as the work force does--out of the surplus in Social Security revenues. Those costs would consume about half of the expected $2.2 trillion Social Security surplus over the next decade, leaving about $1 trillion to reduce the national debt.

That creates a clear contrast with the strategy Clinton and Gore are urging. Both propose using all of the anticipated Social Security surplus--and part of the projected surplus in the federal operating budget--to pay off the $3.5 trillion publicly held national debt by 2013.

Clinton and Gore argue that by eliminating the debt, the government would save the roughly $230 billion it now pays in annual interest costs. Each has proposed to transfer those savings directly from general revenue into Social Security beginning in 2011--an approach that would infuse $2 trillion into the Social Security system from 2011 to 2020, and even larger sums for every decade thereafter. With those massive transfers, the administration projects, the Social Security system could afford to pay current benefits until 2054.

But critics question whether Washington could afford to provide so much money for the system, worrying that such a policy could leave other domestic needs begging. Part of the concern arises from an aspect of Social Security funding--the program holds government bonds, and the Treasury is obligated to pay it interest on those bonds.

By 2015, the annual cost of that existing obligation will reach $281 billion. The interest savings from paying off the national debt that Gore and Clinton want to devote to Social Security would be paid on top of those existing commitments--which means that by 2020, the Treasury would be providing more than $500 billion a year for Social Security, a sum larger than the anticipated bill for all other discretionary domestic spending.

Though the administration projects long-term budget surpluses large enough to meet those costs, many analysts criticize Gore for asserting that such optimistic forecasts essentially eliminate the need for cost-saving reforms.

Gore Supports More Spending

In the interview, Gore again refused to endorse any specific cost-cutting measures; instead, he’s moved in the opposite direction, proposing to spend about $100 billion over the next decade to increase retirement benefits for widows and stay-at-home mothers under Social Security, and about $185 billion to provide prescription drug benefits under Medicare.

“Gore is taking a reactionary approach: He is not rejecting just specific proposals, he is rejecting the whole idea of changing these programs. And that’s too bad, because they have to change,” said John Goodman, president of the conservative National Center for Policy Analysis and a Bush advisor.

Yet the Bush approach could also entail significant obligations to the Treasury over time. Current projections call for the Social Security surplus to vanish in 2015, at which time the only way Washington could continue to fund individual investment accounts would be through general tax revenue. Dean Baker, an economist at the liberal Center for Economic and Policy Research, said those costs could approach $200 billion a year by 2020.

Deficit hawks such as Bixby of the Concord Coalition say such potential obligations--as well as the inexorable growth in Medicare costs--make it imprudent to cut taxes as much as Bush proposes. He also contends it may be risky to increase benefits as Gore proposes without controlling the programs’ costs through reforms.

“I think both candidates are getting a little optimistic in committing surpluses that may or may not exist,” he said.

Counting the Costs

Key dates in current fiscal projections for Social Security program:

* 2015: Cost of providing Social Security benefits exceeds payroll tax receipts, and the system must rely on interest from its government bond holdings to meet its obligations.

* 2025: Cost of providing benefits exceeds taxes and interest, forcing trust fund to begin liquidating its bond holdings to cover obligations.

* 2037: Trust fund exhausted. Taxes available only to pay 72% of anticipated benefits.

Source: Social Security Board of Trustees Report, 2000

*

Times staff writer Edwin Chen contributed to this story.