Bush Now Directing Attention to Revamping Social Security

Times Staff Writer

President Bush is completing plans to campaign next year for a restructuring of Social Security, a potentially divisive drive that he believes is "a winning issue" for Republicans -- and for his own legacy.

Even as lawmakers and the president twisted arms to reach agreement on expanding Medicare and providing seniors with prescription drug coverage, White House aides were working with allies on Capitol Hill to fine-tune a strategy on Social Security.

The nation's bedrock social insurance program since its enactment in 1935, Social Security is funded by a payroll tax that is slated to pay for $470 billion in retirement benefits this year to more than 46 million elderly and disabled Americans. Bush's goal of allowing workers to divert some of those payroll taxes into private investment accounts faces even more political obstacles than the just-passed Medicare legislation.

"This issue scares older Americans more than the bill that just passed," said Robert Blendon, a Harvard analyst who specializes in entitlement programs. "This is more powerful, more threatening."

But Bush may enjoy advantages over predecessors who tried to revamp Social Security. His success in overseeing change in Medicare could give weight to his 2000 campaign claim of being a "reformer with results." And the sense of anxiety over Social Security is mounting as the day of the program's inability to pay promised benefits -- now estimated to occur in about 2039 -- draws closer.

"Politically, the safest course would be to say nothing about it; historically, Social Security has been a Democratic issue," said John J. Pitney, a professor of government at Claremont McKenna College. "But on the other hand, hard-core opposition to Social Security reform has receded, if only because the day of reckoning is getting closer, and most people in their 40s and 50s realize that some kind of change is necessary."

When he ran for the White House, Bush embraced an overhaul of Social Security as a central plank of his campaign. A few months after taking office, he named a bipartisan 16-member commission to recommend ways to preserve the program. Since then, though, he has been preoccupied with other matters -- most notably the war on terrorism.

Yet Social Security did not fully recede from Bush's mind. He often tells listeners, especially at Republican fund-raising events like those in Nevada and Arizona last week, that he does not intend to pass the buck on challenging tasks.

"I came to this office to solve problems, instead of passing them on to future presidents and future generations," Bush told supporters at the Venetian Hotel and Casino in Las Vegas.

Fiscal conservatives, however, have voiced unhappiness with Bush because of the government's return to massive deficit spending under his watch, with Washington facing a budget shortfall approaching $500 billion for fiscal year 2004. Such huge deficits loom as a potentially crushing financial burden on future generations. But Bush has justified them on the basis of unavoidable spending for the war on terrorism while arguing that his two across-the-board tax cuts would stimulate the economy and thus generate tax revenues to whittle down the deficit.

At the White House, where senior aides have been working to complete Bush's 2004 agenda, deputy communications director Suzy DeFrancis said that "it shouldn't surprise anyone" when the president begins promoting changes in Social Security in the coming months.

There is no dispute that, without major intervention, Social Security is headed for insolvency. The annual cost of its benefits represents about 4.4% of the gross domestic product. But because America is an aging nation, that is projected to rise to 7% of the GDP by 2077.

In the beginning, about 40 workers paid Social Security taxes for every one retiree receiving benefits; today, the ratio is three workers per retiree.

To compensate, the Social Security tax has grown from 2% to more than 12%. Given the number of baby boomers -- those born between 1946 and 1964 -- the payroll tax would need to be 18% or more if retirees are to continue receiving the same benefits, unless new ways are found to finance the program.

At the current rate, Social Security would, in 2018, begin paying out more in benefits than it collects in taxes, and would be insolvent by 2042.

When Bush established the Social Security commission in May 2001, he laid out six "guiding principles" that included no changes for retirees or near-retirees regardless of the commission's recommendations; no increase in the payroll tax; and the creation of individually controlled, voluntary personal retirement accounts, which dovetails with the president's vision of an "ownership society."

In October 2002, the panel produced an array of options, including the controversial private investment accounts, that the commissioners predicted would make Social Security solvent and permanently sustainable.

Many Democrats in Congress vociferously oppose the creation of such accounts, saying that such a move toward "privatization" would be a prescription for financial ruin for seniors whose investment choices do not pan out, especially if the stock market experiences another slump.

While touring a BMW manufacturing plant near Greenville, S.C., recently, Bush spoke with Sen. Lindsey O. Graham (R-S.C.) about plans to overhaul Social Security, describing it as "a winning issue," Graham said in an interview last week.

Working with the White House Office of Legislative Affairs, Graham drafted and recently introduced a bill to create the personal investment accounts. Without them, he said, Social Security would have to raise payroll taxes by up to 50% and cut benefits by 30%.

Graham, who campaigned on Social Security reform when he ran for the Senate, is circulating a letter on Capitol Hill beseeching fellow lawmakers to avoid using "white-hot rhetoric" against those "who discuss reform options openly and honestly."

"Social Security has often been used as a weapon to achieve short-term political goals," Graham said. "Indeed, both parties seemingly compete to outbid each other in ruling out options for restoring the fiscal health of Social Security. It is time for the demagoguery to stop."

But as the Medicare debate in the Senate suggested, there is unlikely to be a letup in Social Security discussions. As Sen. Edward M. Kennedy (D-Mass.) charged during his unsuccessful filibuster against the GOP-written Medicare bill: "Hold on to your hat. Today, Medicare. Tomorrow, Social Security."

Such rhetoric is unlikely to deter Bush, said Pitney of Claremont McKenna College, who heard Bush talk about Social Security reform during a 2000 campaign stop in Rancho Cucamonga.

"It's always possible to give the appearance of doing something without really trying. One can make speeches, but at the end of the day, blame the political establishment," Pitney said.

"But my sense is this is something he's really serious about, even though I don't think it's going to be a big plus for him in the 2004 campaign. This is something he thinks about when he considers his legacy."

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