Bush outlines Social Security plans
The president's proposal will be difficult to accomplish, critics said.
DALLAS MORNING NEWS
WASHINGTON -- President Bush reached back to his 2000 presidential campaign Thursday to illustrate his vision for the nation's economic future: The president called for changes in Social Security, including a plan for private investment accounts.
Indeed, the idea is not new. And while experts agree Social Security's finances desperately need attention, they said the president's proposals are likely to encounter fresh economic and political headwinds.
Experts said the president's proposal would be tough to accomplish because tax cuts, the recession and spending on national security have turned budget surpluses into a long-term deficit. And, they added, Social Security has taken on renewed partisan heat as a political issue.
Despite obstacles, supporters say private accounts are a logical component of the ownership society envisioned by the president. Building on existing concepts such as IRAs and 401(k) accounts, they said Bush wants Americans to have greater control over their finances, including health care, investing and retirement.
More risk
Critics said Americans could see more risk in having a bigger ownership role, particularly in an era defined by the 2000 decline in the stock market, a weak recovery, rising health-care costs and terrorism.
Both supporters and critics acknowledge that policy-makers have already postponed dealing with the projected insolvency of the nation's retirement program for too long.
And matters are only getting worse: The next president will be on duty in 2008 when the first wave of the 77-million baby boom generation turns age 62 and is eligible for Social Security
According to the 2004 Social Securities Trustees Report, the retirement plan will be paying more in benefits than it receives in payroll taxes beginning 2018. And by 2042, Social Security will use up its reserves and be insolvent.
Currently, the payroll tax is 12.4 percent on the first $87,900 of wages, which is equally paid by workers and employers.
While Bush wants Congress to take the lead, he is expected to favor a plan that would give younger workers the option to redirect 2 percent to 4 percent of payroll to a private account.
Benefits for current and near retirees would not be affected.
Funds diverted to private accounts would no longer be available to pay current benefits, forcing the government to borrow money in capital markets to meet its promises. Experts estimate the additional shortfall could total $1 trillion to $2 trillion over 10 years.
Proponents dismiss the transition cost, saying the system would ultimately balance. In later years, beneficiaries would increasingly draw benefits from private accounts, reducing the costs of traditional Social Security.
But critics said the transition costs would not be recovered until about 2050, a questionable forecast when measured against the potential effects of future recessions, wars and other crises.
With the baby boom generation working and paying taxes, the system currently runs a surplus, taking in more than it pays out in benefits. The surplus is invested in special treasury bonds, and the government spends the money.
Over the next 75 years, the trustees said the system will use up its surplus and will be $3.7 trillion short of funds its needs to pay promised benefits -- even without adding private accounts.
And even as politicians begin debating solutions, there is disagreement about the magnitude of the problem.