Published May 20, 2005
WASHINGTON – While President Bush spoke in Milwaukee, Wis., on Thursday to push his plan for personal investment accounts for Social Security recipients, a chief adviser fought what he says are Democratic misrepresentations of his support for the plan.
Bob Pozen (search), the man who authored the "progressive indexing" proposal to address solvency problems in the Social Security (search) system, said he is stunned that a statement he made at a conference Wednesday has caused such an uproar.
Pozen is quoted as saying during a conference at the American Enterprise Institute in Washington, D.C., that the president's insistence that individual accounts be created by diverting some payroll taxes designated for Social Security is a bad idea and that he advised Bush to say they aren't a required part of his Social Security plan.
Democrats jumped on the news. Sen. Chuck Schumer (search), D-N.Y., a member of the Senate Finance Committee and "point person on Social Security," called Pozen's remarks "amazing news."
"This is amazing news that represents a huge setback for the president's privatization plan. One of the few experts and Democrats they actually acknowledge approvingly has said that he's against private accounts out of Social Security. The president ought to heed the cry from one end of the country to the other to drop privatization," Schumer said, adding that Bush's "insistence on privatizing Social Security and increasing the debt" is a non-starter with Democrats.
Pozen, chairman of MFS Investment Management and a former member of Bush's Commission to Strengthen Social Security, shot back at Democrats on Thursday, saying he never claimed to be against private accounts drawn from the Social Security program.
"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 said in a statement.
"Carve-out accounts" refers to the money that would be pulled from the Social Security system under Bush's proposal. "Add-on accounts" apply to money that would be offered as incentives to workers to save what could be pulled from the government's receipts outside the Social Security program.
Last week, Pozen spoke to the House Ways and Means Committee about different kinds of fixes to Social Security. He told the panel that solvency is the key and accounts can be done in all sorts of ways.
On Thursday, Pozen said add-on savings accounts could include enhancements of existing personal retirement accounts, for instance, lifting the income ceiling on tax-free Roth IRA personal retirement accounts, or by offering to put tax credits into savings programs on behalf of low-income workers.
Pozen also suggested that Congress may want to consider a 2.9 percent surcharge on incomes of wealthy workers who max out of contributing to the payroll tax once they earn more than $90,000. That surcharge could then be split up with the half that is paid by the employer going toward solvency of Social Security and the half paid by the employee going into personal accounts.
Public opinion polls show little enthusiasm for the president's proposed personal retirement accounts and nearly all congressional Democrats say the proposal is an attempt to privatize the program that will end up cutting the guaranteed benefits for millions of retirees.
But, polls also show that young workers who are further away from receiving Social Security and more likely to face cuts in benefits prefer private accounts more than older workers. The system is expected to be exhausted in 2041 at which time promised benefits will automatically be cut about 27 percent at first, and more as time goes on.
Bobby Kraft, 27, president of a local printing and mailing company, appeared with Bush on Thursday and told the president that he urges his employees to take advantage of their 401(k) plans because "the way the Social Security system is set up, we cannot count on that to be there."
"A lot of people [are] feeling that way here in America," interjected Bush, sitting next to Kraft on a stage in the soaring Milwaukee Art Museum atrium, Lake Michigan visible through the windows behind him. About 20 other young workers joined him.
Bush added that his plan for personal accounts would allow young workers to earn larger nest eggs than Social Security could provide. He said he also thinks progressive indexing would help prevent the future insolvency of the program.
According to progressive indexing, retirement benefits for low-income workers would continue to be pegged to the growth rate of average wages, the way the system currently operates. However, high-income workers' benefits would be linked to increases in prices, which tend to grow slower than wages. A mix of wage- and price-indexing would be used for middle-income workers.
"It sounds simple, but it basically means that poor people won't have to retire into poverty and the wealthier people in America will get benefits that increase with the rate of inflation," he said. "There's a reasonable approach that I'm confident, if Congress takes a look at, will see it is reasonable."
Panelists before the House Ways and Means Committee on Thursday testified that Congress cannot avoid looking at either add-on or carve-out accounts because low-income workers don't have enough cash assets to open retirement accounts. They suggested that Congress consider vehicles such as automatic enrollment in existing tax-favored retirement accounts like 401(k)s or other such accounts that low-income workers most in need of retirement assistance currently tend to pass up.
FOX News' Jim Angle and Sharon Kehnemui Liss and The Associated Press contributed to this report.