Published May 20, 2005
WASHINGTON – President Bush (search) remains committed to overhauling Social Security with private investment accounts funded with payroll taxes, a spokesman says, despite suggestions from an investment executive — an administration favorite — that the idea should be dropped.
Bob Pozen (search), whose concept of "progressive indexing" for future benefits has been cited by the White House, said in a statement Thursday, "Given the lack of bipartisan support for carve-out personal accounts, the president should not insist on carve-out accounts if the Democrats support an overall legislative package for Social Security reform that is otherwise satisfactory to him."
Pozen, a Democrat, said lawmakers should instead focus on so-called add-on accounts, which are funded with other revenues. The Boston investment chief has suggested increasing investment in Roth IRAs by lifting the existing caps on them.
White House spokesman Trent Duffy (search) said the carve-out accounts are the best way to allow low-income workers to invest without affecting their take-home pay.
"They are really the only way for lower-income workers, who live paycheck-to-paycheck, to take advantage of long-term investment," Duffy said.
Pozen issued his statement after he made similar comments at a think tank in the capital.
Democrats have accused the president of trying to starve Social Security by siphoning off some of its funding, changing the program's nature from one providing a guaranteed government benefit to one managed by individuals and subject to the risk of the investment market.
Bush has proposed allowing workers under 55 to invest nearly two-thirds of their Social Security taxes in private accounts. He has also highlighted Pozen's plan for changing benefit calculations by keeping those for low-income workers linked to wages while shifting those for middle- and upper-income workers to an increasing reliance on a slower-growing price index.
A Republican congresswoman said her constituents appear opposed to the accounts idea.
"My mail's probably going 100-to-1 against privatization," Rep. Jo Ann Emerson (search), R-Mo., told Congressional Quarterly.
While the president stumped for his plan in Milwaukee, the House Ways and Means Committee held its third hearing in a week aimed at producing a bill. A spectrum of analysts both for and against the accounts largely agreed that in addition to focusing on securing Social Security, Congress should work on ways to encourage low-income workers to join middle- and upper-class workers in setting aside some of their own money for retirement.
"You don't need to be a mechanic to drive a car and you shouldn't need a Ph.D. in financial economics to navigate the pension system," said Peter Orszag, a fellow at the Brookings Institution and the director of the Retirement Security Project (search). He suggested allowing people to invest a portion of their income tax refund through a check-off box on their tax returns.
The testimony appeared to strike a chord with the panel's chairman, Rep. Bill Thomas, R-Calif., who highlighted suggestions for requiring workers to opt out of — instead of opting into — corporate retirement accounts such as 401(k)s. He also spoke favorably of changes aimed at inspiring investment from less wealthy workers.
"If someone is going to save anyway and then shift the way they save because you've induced them to shift by virtue of a tax subsidy, you haven't increased savings, you've simply shifted assets," he said. "Our job is to figure out how to create a system which makes it easier for the first dollar to go into the savings, not the last dollar."
While Thomas previously said he hoped to produce a retirement security package — including Social Security reform — by early June, the chairman told reporters, "I'm willing to be wrong."