- The Washington Times - Thursday, December 2, 2004

The White House is considering larger Social Security personal investment accounts than the 2 percent plans often linked to President Bush’s proposals to overhaul the New Deal era retirement system, according to advisers who have attended administration briefings.

In the weeks since Mr. Bush’s re-election, White House officials have been holding a steady stream of meetings with Social Security reform advocates from the Cato Institute, the Heritage Foundation, and leading business and industry associations as they develop a plan to let younger workers invest part of their payroll taxes in stocks and bonds that they would own and control.

Participants in these closed-door policy-making briefings say that Vice President Dick Cheney’s office has become a player in the meetings and that senior officials are considering plans that would allow investments of up to 4 percent of payroll taxes, one of the three options proposed by the president’s Social Security reform commission in 2001.

“I don’t think they are limiting themselves to the commission’s proposal. I think there is a strong possibility that the White House is considering larger accounts,” said Michael Tanner, director of Cato’s Social Security privatization project and one of the advisers who has participated in the White House briefings.

Both Derrick Max, executive director of the Alliance for Worker Retirement Security, a broad-based business coalition that has been lobbying for Mr. Bush’s plan and whose members also have participated in administration briefings, and another White House adviser, who asked to remain anonymous, predicted the accounts would be larger than 2 percent but less than 4 percent.

One participant in the White House meetings said that the emerging plan “will be similar to the federal retirement system” which allows government employees, including members of Congress, to invest their pension contributions in mutual stock and bond funds among other investment vehicles.

“There will be a limited number of investment choices, somewhere in the range of three [funds], and all three would be diversified. It will essentially be a very low cost, stripped-down basic account, a much simpler system than your average 401(k) accounts,” said this adviser.

Of particular interest to many of these advisers was the role that Mr. Cheney’s office has been playing in the meetings.

“Cheney’s office seems to be getting involved and if it comes down to twisting arms, that’s where it’s going to be done,” said one participant.

Charles P. Blahous, who was executive director of the 2001 presidential commission, and is a special assistant to the president for economic policy, has been a key figure in the briefings, but participants say the White House is searching for a major figure to head up and steer the reform effort that will be presented to Congress early next year.

The White House had hoped that Stanford University economist John Cogan, a senior fellow at the Hoover Institution who served on the Social Security reform commission, would take that job, but he has turned down the offer, citing family responsibilities. Administration officials say that Mr. Cogan remains a key member of their “brain trust” who will play a significant role in shaping the final product before it is submitted to Congress.

Mr. Cogan, among others advising the White House, is urging Mr. Bush to move swiftly on his reform plan while he still has plenty of political momentum from his re-election and his party’s gains in Congress.

“The odds of getting Social Security reform have never been better because you have a president who is firmly committed to getting it, who has just won a significant re-election and who has a majority of both houses of Congress. Every expert who has looked at the issue knows that now is the time for reform,” Mr. Cogan said in an interview.

However, he said, “you don’t necessarily have to start out big. It can be done on a gradual basis, with a long lead time, but you want to get started right away so individuals can benefit from the power of compound interest.”

“Once people find out how much they can earn [in their personal investment accounts], they will demand that they be allowed to put more money into it,” Mr. Cogan said.

The biggest issue the administration still has to solve is how to offset the loss of taxes to the private investment accounts. Think tanks and business leaders who are advising the White House say they remain opposed to raising the payroll tax cap, preferring to finance the costs from other general fund savings and tax reform.

Sen. Lindsey Graham, South Carolina Republican, has proposed a 4 percent plan that could raise the cap on taxable payroll from $87,000 to $150,000 to help offset the costs. He said yesterday that if the White House plan has any chance of passage, Mr. Bush is going to have to accept “nontraditional Republican concepts to solve this problem.”

Currently, employees and employers split the Social Security payroll tax of 12.4 percent of wages.

Mr. Graham also said that Mr. Bush’s proposal cannot pass without Democratic support and that he has talked to “a handful of [Senate] Democrats who are seriously considering solutions to Social Security” who are open to a compromise solution on transition costs.

“We’ve got a six-month window here to do this because after that everyone will be focusing on the 2006 [congressional] elections. We need to be bold and we need to be quick,” he said.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide