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Bush Plan Aids Poor, Squeezes the Rest

Times Staff Writer

As the full dimensions of President Bush’s Social Security plan come into view, so too does a broader vision: improving benefits for the poorest Americans while reducing the reliance of everyone else on government programs that long have seen them through economic difficulties.

Although Bush devoted most of his prime-time news conference Thursday to describing how he would expand Social Security protections, virtually all of his improvements would be aimed at the bottom one-third of American wage earners. The remaining two-thirds would see their future Social Security benefits curtailed, a reduction that they’d be encouraged to make up by saving and investing of their own.

The president often portrays his effort as simply trying to accommodate reality; funds to pay full Social Security benefits are expected to run short toward the middle of the century. But his approach also corresponds to a long-held conservative goal of reducing Washington’s influence in the lives of ordinary Americans and to the aim of his chief political strategist Karl Rove to realign the nation along Republican principles.

“What you’re going to see is an effort to scale back middle-class entitlements that many people do not need and to become more focused on the antipoverty aspects of these programs,” said Michael Tanner, an expert on Social Security at the Cato Institute, a Washington think tank that advocates small government.

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“We’re going to tell non-poor Americans that they are going to have to save more on their own and not depend on a transfer from government,” he said.

Bush has sought to use this targeted approach at least once before in proposing to create a Medicare drug benefit that would go almost exclusively to poor Americans rather than to the elderly. Although Congress ultimately approved a benefit that did go to seniors generally, the law includes substantial assistance for those with incomes less than 150% of the poverty level, or $14,355 for an individual.

Tanner and others predicted that Bush would pursue similar targeted tactics if he tackled Medicare’s overall costs, which many policy analysts described as a looming crisis that, in contrast with Social Security, needed immediate attention.

“Bush and the Republican leadership are committed to seeing universal programs like Social Security and Medicare turned into means-tested welfare programs,” said Robert J. Blendon, a health policy professor at Harvard.

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On its face, the idea of focusing public dollars on those most in need seems to have an irrefutable logic. But some analysts warn that the approach could erode public support for programs like Social Security and substantially shrink the protections the government provides Americans.

In fact, as he has before, Bush left the window open to some increase in taxes, saying Thursday that he would not accept an increase in the 12.4% payroll tax rate for Social Security but remaining silent about the idea of expanding how much income could be taxed at that rate.

However, Bush made clear that he believed most of Social Security’s financial problems should be solved by limiting the future benefits of middle- and upper-income Americans, even while protecting the retirement checks of those near the bottom.

Analysts struggled after the Thursday news conference to sort out details of the administration’s cutback proposal, because Bush so gingerly embraced the measure that it was difficult to know whether he had endorsed any benefit reductions at all.

The cutback proposal, designed by Robert Pozen, a Boston investment executive and a Democratic member of Bush’s 2001 Social Security Commission, would reduce a projected funding gap in the big public retirement program by changing the way people’s Social Security benefits are calculated.

As matters now stand, the government sets initial benefits by averaging a worker’s highest-earning years and then adjusting the number upward by the growth rate of wages during the person’s work life.

Under Pozen’s proposal, this method would continue to be used for about the bottom one-third of wage earners, those making up to $20,000 a year in current dollars. But for those making over that amount -- and especially for those making more than $90,000 -- workers’ earning average would be adjusted upward by the growth rate of prices, rather than wages.

Since wages have grown about 1% faster a year than prices, the switch would mean that most future retirees would receive lower benefits than they are now scheduled to receive. And in some cases, benefits would be substantially lower.

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According to estimates by the Social Security Administration, a worker making $36,000 in current dollars would have an annual benefit reduction of about $7,600, or 28%, by 2075 -- the year used in most measures of the program’s solvency. For a worker making $90,000, the reduction would total almost $22,000, or 50%.

Social Security officials estimate that if nothing is done to correct the program’s finances, the system’s reserves will be depleted in 2041. But even then, it could remain solvent by cutting benefits about 25% across the board.

Bush said Thursday that the Pozen plan would fix about 70% of Social Security’s solvency problems, which are estimated to run $3.7 trillion between now and 2075.

But analysts with the Center on Budget and Policy Priorities, a liberal Washington advocacy group, disputed that figure Friday, saying that Pozen’s proposal includes cutting back benefits for disabled people, which Bush has promised not to touch. Without the disability cuts, Bush’s proposal appears to close about half the gap, the analysts said.

Any cutbacks under the Pozen plan would come on top of the benefit reductions that Bush has said would be necessary to fund his proposed Social Security personal accounts. These later cuts would involve a $1 reduction in a worker’s traditional benefits for every dollar he or she contributes to the personal account.

Despite the variety of cutbacks, conservative analysts predicted that most Americans would conclude that they could largely provide for their own retirements and need Social Security only as protection against destitution.

“What this does is promise that people in true need not fall below poverty,” said David John, an analyst at the Heritage Foundation, a conservative think tank.

“We have promised more than we can deliver, and this would bring Social Security’s promises back into line with what people want and with what we can afford,” he said.

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But others suggested that Americans had come to expect considerably more from Washington than a stop-gap against poverty.

“This proposal would leave us with safety nets that are barely off the floor,” said Robert D. Reischauer, president of the Urban Institute, a Washington think tank. “It’s now becoming clear that the president’s proposal involves a lot more cutbacks than people had thought, and they’re not going to like it.”


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