Washington – President Bush’s embrace of Social Security benefit cuts that would hit 70 percent of future retirees received a wary reception Friday from both parties as Congress prepared to move ahead with remedies for the retirement system’s financial problems.
House leaders vowed to press on with a Social Security fix, starting with hearings that will begin May 12 and culminating with legislation, “probably in early June,” said Rep. Bill Thomas, R-Calif., the House Ways and Means chairman who probably will be instrumental in crafting a Social Security bill.
“What the president has done is fundamentally courageous,” Thomas said, “and what Republicans will do is follow the president.”
Other Republicans were reluctant.
Some, such as Sen. George Allen, R-Va., were searching for options that would spare middle-income earners while placing a larger burden on the affluent.
“I wouldn’t want to have a proposal that makes it more difficult for people of lower and middle incomes to provide for their retirement security,” Allen said during a luncheon with Washington Post reporters and editors.
Others blanched at the traditionally liberal notion that the level of sacrifice should rise with income.
“That’s an idea that comes from the left typically – means testing,” said Rep. Paul Ryan, R-Wis., who has co-authored Social Security legislation that creates large private accounts and guarantees that investment returns will be lucrative enough to beat currently scheduled benefits.
Sen. John Sununu, R-N.H., Ryan’s co-author, maintained the pain implicit in Bush’s proposal may be unnecessary.
“The benefit changes the president proposed does underscore the difference between a proposal that allows relatively large accounts and one that doesn’t,” he said. “By creating significant accounts, our bill doesn’t rely on changes in benefits to reach permanent solvency.”
During a news conference, Thomas stressed that any bill out of his committee would address far more issues confronting an aging nation than just Social Security and private investment accounts.
It probably would bolster private pension plans, provide tax incentives for retirement savings and long-term health care, and clamp down on Medicaid coverage for those who are not truly indigent. He endorsed what he called “the president’s concept of having an account with your name on it, a personal account, if you will.” But he added that “personal accounts can take a number of forms.”
Thomas did, however, appear ready to accept Bush’s approach to Social Security benefit cuts, in which promised benefits for the poor would be protected, but cuts would fall progressively harder as incomes rise.
“Those who have no other option should be the ones who get the best return out of Social Security,” he said. “But those who have other options perhaps don’t need to get as much as the current formula suggests.”
Between an earlier personal- accounts proposal and a new benefits plan outlined by the president Thursday night at his news conference, the White House has constructed a Social Security proposal that is nearly complete.
Workers could divert 4 percent of their income subject to Social Security taxation to accounts, where it could be invested in stocks and bonds. For every dollar diverted, the traditional Social Security benefit would be reduced by a dollar, plus interest equal to 3 percent above inflation.
The solvency gap between benefits promised and Social Security taxes owed would be closed by a formula change, known as progressive indexing, that would pare back benefits for everyone with incomes currently above about $25,000 – or 70 percent of the country.
For those earning the taxable maximum, $90,000, the benefit cuts would be the steepest.
Such workers, retiring in 2055, would lose $13,000 of their promised annual benefit, or 37 percent. Those workers would actually be better off if Social Security were allowed to exhaust its trust fund, then pay out only what it can afford from future payroll taxes.
Middle-income Americans would be hit as well, although not as hard.
Workers earning as little as $35,000 a year would lose a quarter of their promised benefits by 2065, although their benefit under progressive indexing would be 11 percent larger than the check Social Security could afford to issue by then.
Americans currently older than 55 would not be affected by the proposal.
