CQ WEEKLY
Jan. 3, 2005
By Alex Wayne, CQ Staff
Proposals to overhaul of Social Security for the first time in 22 years are expected to trigger a major battle during the 109th Congress.
Insisting that Social Security is on the brink of a fiscal crisis, President Bush and many congressional Republicans want to revamp the retirement program by permitting younger workers to divert some of their Social Security payroll tax payments into personal investment accounts.
Retirees and older workers, the president insists, would not be affected. Bush declared Dec. 9 that he opposes increasing the payroll tax to cover the revenue that would be diverted from the payment of benefits.
The urgency, the president and his allies say, is driven by demographics: Soon there will no longer be enough tax-paying workers to pay for the benefits promised to a fast-growing population of retirees.
But critics of Bush’s proposal say Social Security will remain solvent into the middle of this century, and argue that less dramatic changes — such as increasing payroll tax payments by upper-income workers or changing how benefits are calculated — would head off any problems. Few Democrats have offered support for any plan involving personal accounts, which many deride as “privatization.”
Flash Points
Retirement accounts: Bush and many congressional Republicans want to give workers the option of setting up personal retirement accounts, similar to 401(k)s, within Social Security. Workers could use them to invest a portion of their payroll taxes.
Transition costs: Personal accounts would be created with tax dollars that otherwise would be used to pay current retirees’ Social Security benefits. That would create a deficit that could total more than $1 trillion. Diverted Social Security revenue would have to be replaced through increased government borrowing, tax hikes, benefit reductions, spending reductions elsewhere in government, or some combination.
National savings: Proponents of personal accounts say they would boost the nation’s overall savings rate. But critics say workers would substitute the accounts for personal savings.
Democratic support: No plan creating personal accounts is likely to win Senate approval without some Democratic backing. Yet no Senate Democrat unequivocally supports such a plan.
Notable Events
April 20, 1983: Legislation signed into law by President Reagan (
December 1994: Leaders of the bipartisan “Commission on Entitlements and Tax Reform” urged President Clinton and Congress to overhaul Social Security and Medicare. Among their recommendations: personal retirement accounts funded by a 1.5 percent share of the payroll tax. Then-Sens. Bob Kerrey, D-Neb., and John Danforth, R-Mo., the panel’s leaders, also proposed raising the full retirement age to 70, adding state and local government workers, and reducing benefits for younger workers and high earners.
January 1997: Five of the 13 members of the Presidential Advisory Council on Social Security recommended a Social Security overhaul involving personal accounts, while two others recommended a more restrictive personal accounts plan. Clinton did not endorse either or pursue his own personal accounts plan of his own, but current advocates of personal accounts point to the council’s recommendations as the starting point for serious debate.
May 2, 2001: President Bush appointed a bipartisan “Commission to Strengthen Social Security,” led by former Sen. Daniel Patrick Moynihan, D-N.Y., (1977-2001) and Richard Parsons, who was then chief operating officer of AOL/Time Warner. In December, the panel recommended three proposals to add private savings accounts to Social Security. Bush endorsed none of them.
January 20 or early February 2005: Bush is expected to elaborate on his Social Security plan during his Jan. 20 inaugural address or his State of the Union speech in early February.
Players to Watch
Personal Accounts
President Bush: Bush says he intends to spend “political capital” he won on Election Day to gain approval of a personal accounts plan. He puts Social Security near or at the top of his list of domestic priorities. But he has not detailed his proposal nor endorsed specific legislation. It is not clear when or how he will spur Congress to act.
Sen.
Budget Scoring
Douglas J. Holtz-Eakin, CBO director: The Congressional Budget Office will be asked to score the financial impact of many of the Social Security overhaul bills. In 2004, Holtz-Eakin’s office also began making its own projections of Social Security’s financial future. Though CBO’s projections so far vary little from those of the Social Security trustees, lawmakers will have to sort between the two.
Minority Party Support
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Legislative Details
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Budgetary Impact
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Interested Groups
AARP: The largest interest group representing the elderly was stung by criticism from its members when it supported the 2003 Republican-backed overhaul of Medicare. The group does not support personal accounts in Social Security, although it advocates expanded federal support of private savings plans such as 401(k) accounts. It says Social Security’s solvency can be ensured without benefit reductions through a combination of tax increases, accounting changes and other proposals.
Alliance for Worker Retirement Security: A coalition of businesses, business groups and interest groups supports President Bush’s effort to create personal accounts in Social Security. It includes the American Bankers Association, the Securities Industry Association and some financial institutions, all of which could profit from managing workers’ personal accounts.
Think Tanks: Conservative-leaning research institutes have kept the idea of personal accounts on a front burner. A proposal by the libertarian Cato Institute was the model for legislation introduced by Rep.
Source: CQ Weekly
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