Published April 26, 2005
WASHINGTON – As President Bush was finishing up his 60-day tour touting his Social Security (search) reform plan, Congress prepared a flurry of its own activity to see if the administration's proposal will result in any substantive changes.
Bush declared during his State of the Union address in February that he wanted younger workers to be able to invest a portion of their payroll taxes (search). The Senate Finance Committee began its first hearing on the proposal Tuesday.
Sen. Charles Grassley of Iowa, the committee's Republican chairman, brought down the gavel with a declaration that members not only solve the program's most immediate financial problems, but set it on a path to "sustainable solvency" so future the can down the road a while," Grassley told a packed hearing room.
He added: "The longer Social Security's future remains in doubt, the more people will worry about their own future prospects. A sustainable Social Security program will give everyone additional piece of mind. "
The committee's top Democrat, Sen. Max Baucus of Montana, agreed that Social Security faced financial problems, but he said the personal accounts would only exacerbate it by triggering more government borrowing to finance the startup costs.
"We do not have to privatize Social Security in order to save it," Baucus said in his opening statement. "Clearly we need to address Social Security's long-run financing. Nobody disputes that. It's clear. But we do not have to make drastic changes."
Polls have failed to find a groundswell of support for the idea, a point being underscored by hundreds of labor union members and other opponents planning to rally at a park near the hearing room and, later, on the Capitol steps.
A Washington Post-ABC News poll out Tuesday found a decline in public support — only 45 percent of those surveyed favored Bush's plan to divert Social Security taxes into private investments (search), compared with 56 percent who had supported it in a March poll.
"I think in terms of major points we are trying to make, there is a difference between investments and insurance, and that, I think, is what the country has really come to see," said Sen. Ron Wyden, D-Ore., a committee member. "People do not want to play Russian Roulette with their insurance money."
White House spokesman Trent Duffy said the administration is still educating the public about Social Security's long-term financial problems and is undeterred in its effort to produce legislation by fall.
"The view from here is we're right on schedule," Duffy said.
Meanwhile, House Majority Leader Tom DeLay was expected Tuesday to join Bush on his Social Security road tour. DeLay, R-Texas, who is facing allegations of ethical improprieties, is seen by the White House as crucial to pushing Bush's plans through Congress. The president has called his fellow Texan a "very effective leader."
In Galveston, Texas, Bush was to discuss his proposal to add private investment accounts to Social Security. Galveston, which is in DeLay's district, is one of the few places in the country that already lets people opt out of Social Security in favor for personally owned retirement accounts.
In Washington, Sen. Barbara Boxer will hold a noon press conference to release a study of the Texas Social Security privatization plan. The California Democrat has been a leading critic of the Bush administration's Social Security proposal, arguing that the program is not on the verge of collapse or bankruptcy as the White House suggests.
Elsewhere, Senate Democratic Leader Harry Reid of Nevada and House Democratic Leader Nancy Pelosi of California will lead an anti-privatization rally at the Capitol building at 1 p.m. EDT.
For their part, House Republicans at 2 p.m. EDT will publicly challenge Democrats to join in the Social Security debate. Sen. Lindsey Graham, R-S.C., will also discuss the issue publicly at 3 p.m. EDT. Labor Secretary Elaine Chao will also discuss the president's plan during her address to the 2005 Employee Benefits Conference at noon.
Social Security, created by Franklin D. Roosevelt during the Depression, is facing a demographic shift that will challenge its ability to provide benefits.
The program currently takes in more in payroll taxes than it pays out in benefits to about 47 million recipients, including retirees, the disabled and survivors. That trend is projected to end in 2017, after the baby boom generation (search) has begun retiring. By 2041, the system will have exhausted a trust fund built up to continue paying full retiree benefits. Then, according to program analysts, payroll taxes will be able to cover only about 72 percent of promised benefits.
Bush concedes that his proposal, which would let younger workers invest income equivalent to 4 percentage points of their 6.2 percent Social Security payroll tax, will not solve Social Security's financial problems. Rather, he believes it will cushion the blow of future benefit cuts by creating an alternate stream of income that might benefit from compounding interest or historically higher rates of market return.
The Washington Post-ABC News poll found that 64 percent of those surveyed disapproved of the job Bush was doing on Social Security and his overall approval rating was 47 percent, which matched his all-time low. A total of 1,007 randomly selected adults were surveyed by telephone April 21-24 for the poll, which had a margin of sampling error of plus or minus three percentage points.
Among those testifying at the hearing was Robert Pozen of MFS Investment Management. He has proposed "progressive indexing" of benefits in which checks for poorer retirees remain linked to wage growth, benefit checks for wealthier retirees are linked to slower-growing prices, and those in the middle receive benefits based on a combination of the two indexes.
The others panelists were Peter Orszag, a Clinton administration official who opposes privatization, and Peter Ferrara of the Free Enterprise Fund and Michael Tanner of the Cato Institute, both of whom support privatization.
"There's no question that Democrats have sort of won the first few battles on this by obstructing, but I do think that one thing that Bush has made a big advance on is that there is a financial crisis facing Social Security, and if we don't do anything, the Titanic is going to hit the iceberg," Steve Moore, founder of the Free Enterprise Fund, said in advance of the hearing.
House Democrats, emboldened by polling results, have been united in opposition to the president's privatization proposal. They are preparing to pivot soon to supporting proposals aimed at boosting personal savings outside the federal retirement program.
Among the ideas being considered, according to congressional aides speaking on condition of anonymity, are improvements to retirement savings programs, such as trying to increase participation in corporate 401(k) plans by automatically enrolling workers. Under current law, workers choose whether to join such programs.
Another possibility is a civilian version of the Thrift Savings Plan, the 401(k)-style program that federal employees can invest in on top of the contributions they make to Social Security.
The Associated Press contributed to this report.