WASHINGTON – Republican presidential hopeful Fred Thompson on Friday proposed reducing benefits promised to future retirees and establishing a system of voluntary personal retirement accounts under Social Security to help shore up the program's finances.
"If somebody's got a better idea let them put it on the table," said the former Tennessee senator in a challenge to fellow Republicans as well as Democrats vying for the White House in 2008.
President Bush proposed roughly similar changes three years ago, but they proved so controversial that they never came to a vote in either house of the Republican-controlled Congress.
Thompson's proposal steered clear of higher payroll taxes, which many Democrats favor. Nor did he suggest raising the retirement age, another possible way to prolong the life of Social Security.
He said that without a change the program is due to run out of money in 2041, and an automatic 23 percent cut in benefits would follow. "The status quo is not having a Social Security system as we know it" after that date, he said.
Under Thompson's plan, retirement benefits for workers who are currently 58 and older would not to affected.
But workers who are now younger than that would receive smaller monthly Social Security checks than they are now promised because their benefits would be calculated on the basis of the annual rise in prices rather than wages. Prices generally rise at a slower rate than wages.
Separately, Thompson called for creation of personal retirement accounts, to be funded with contributions by workers and matching funds from the Social Security trust fund.
Material provided by the campaign said individuals could contribute 2 percent of wages into their own account. The government would match the first $20 in monthly individual contributions with $50 from the existing Social Security Trust Funds. Additional contributions would be matched at the rate of fifty cents on the dollar.
As an example, the campaign said a worker earning $20,000 a year who established a personal account would end their first year with $1,080 — $400 from their own contributions and $680 in matching funds from the government.
"The money belongs to the worker. It could be withdrawn at the worker's discretion after age 62 and used for any purpose, or left in the account to continue growing," according to written material distributed by Thompson's campaign.
Thompson said the creation of personal accounts would stimulate economic growth, and result in higher tax revenue. As a result, he proposed that the Treasury make a payment each year back to the Social Security trust fund to help restore its reserves.
In unveiling his plan, Thompson criticized Democratic Sen. Hillary Rodham Clinton of New York and other rivals whom he said argue that Social Security's financial difficulties would be solved if the economy grows strongly enough, or else call for an independent commission to propose changes.
"If you can't tell the truth in a presidential campaign, when can you tell it. When should you tell it?" he said.
Three years ago, Bush proposed reducing the future Social Security benefits promised to higher-income workers along the same lines that Thompson suggested, but leaving those of lower-income individuals unchanged.
He also called for personal retirement accounts and would have permitted individuals to divert about two-thirds of their existing payroll taxes for that purpose. In contrast, Thompson said the individual accounts would be in addition to payroll taxes. Additionally, Bush did not propose having Social Security match individual donations.
Under current law, individuals pay a tax of 6.2 percent on their first $97,500 in income to help cover Social Security benefits. The money goes into the Social Security trust funds, out of which the government pays benefits each month.
Under official estimates, Social Security will begin spending more money than it takes in beginning in 2017 and its trust fund will be depleted in 2041.