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Options Given to Save Social Security

Privatization: Panel will let President Bush choose among varied plans to restore retirement program to solvency.

November 30, 2001|ROBERT A. ROSENBLATT | TIMES STAFF WRITER

The heads of a presidential commission--warning that there is no painless solution to Social Security's financial problems--left it to President Bush on Thursday to decide whether to make affluent workers pay hundreds of dollars a year in additional taxes to help keep the retirement system solvent.

The commission, appointed by Bush to find ways to let workers control some of their own payroll taxes, is shaping three alternatives to present to him next month.

One plan would let workers invest about one-third of their taxes themselves, instead of sending all of the money to the government. Another would let them control about two-thirds of their taxes.

The final approach would add an individual investment fund to the existing program. The individual account would be fed by a payment of 1% of taxable wages by each worker, augmented by a government contribution of 2.5%.

The third plan might include an increase in the $80,400 on which workers now owe their Social Security taxes of 6.2%. Lifting the wage base to $85,000 a year would add about $285 a year to the tax bill of those who earn that much or more.

Bush Prohibits Tax Increases

Commission co-chairman Richard Parsons said he wanted the White House to tell him whether this approach would violate Bush's prohibition against higher taxes as a way to help close Social Security's funding gap when the baby boom generation retires. His co-chairman, former Sen. Daniel Patrick Moynihan (D-N.Y.), said he considered increasing the wage base a technical adjustment, not a tax hike.

No matter what the name, Parsons admitted that some wage earners would pay more. "There is no pain-free way" to bring Social Security to long-term solvency, Parsons told reporters during a break in the commission's deliberations.

Moynihan said the commission's options would give Congress, the White House and the American people something to think about next year. The president and Congress are considered unlikely to tackle the issue in earnest until after next year's congressional elections.

Bush made Social Security one of his prime campaign issues last year, saying that individual accounts would give millions of Americans the chance to amass some wealth for their retirement. He said that private accounts would be offered on a voluntary basis, and that there would be no alteration in benefits for current retirees or those nearing retirement.

The plans developed by the commission will be approved in final form next month and sent to the White House. But they received general approval at Thursday's meeting.

The first alternative would allow workers to place 2 percentage points of the 6.2% they pay in Social Security taxes into a personal account. Their basic Social Security benefits would be reduced by a corresponding amount. The assumption is that the private investment account would do well enough to give workers a retirement income equal to or more than that promised by Social Security under current law.

The second plan would allow workers to take control of 4 percentage points of their payroll taxes. Low-wage workers would get a special boost to assure they received a retirement benefit at least 20% above the poverty level--a guarantee that does not now exist. And benefits for surviving spouses would be boosted compared with current law.

Some Reduction of Benefits

Under the third plan, workers would keep paying the 6.2% of wages and contribute an additional 1% to their private accounts. In return, the government would kick in 2.5% of their wages. Basic Social Security benefits would be trimmed, particularly for upper-income workers, compared with current law.

With all these plans, the money for the personal accounts would be deposited in a central fund using the federal payroll tax system. The workers would have a choice of three types of funds (growth, moderate risk and conservative) containing stocks and bonds.

When the personal accounts reached a certain level, workers would be allowed to have more choices of mutual funds.

Democrats quickly criticized the commission's options.

Rep. Robert T. Matsui (D-Sacramento), the House Democrats' major spokesman on Social Security issues, called the three plans "meaningless." "I could have done this by myself in two hours," he said. "They didn't need a 15-member commission and a big staff."

The stock market's volatility in the past 18 months illustrates the risks that would accompany private investment accounts, Matsui said.

Regardless of what happens with the commission's particular offerings to the White House, Social Security's financing must be dealt with to provide retirement for the 76 million baby boomers, those born from 1946 through 1964, who belong to the biggest generation in American history. The oldest of them will be eligible for full retirement benefits starting in 2012.

Social Security has a surplus, but the system as now constituted will face a financial crisis around 2038, when it will no longer be able to pay promised benefits.

With the crisis many years away, no one is proposing to change the retirement system overnight. Bush's commission would make its changes effective in 2009, meaning that anyone now 59 or older would reach retirement age under the current program.

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