Partisan clash stalls progress on Social Security

Author: Carolyn Lochhead

Published: May 26, 2005

A key Senate Republican conceded Wednesday that he has made little progress crafting a Social Security overhaul.

Asked how close he is to coming up with a legislative package, Finance Committee Chairman Charles Grassley replied, "Not very close, I'm sorry to say. We have not made a lot of progress in the three meetings we've had with our members."

The blunt-speaking Iowan's comments, coming after his committee's third hearing on the giant retirement program, clashed with the upbeat prognosis laid out the day before by President Bush's point man on Social Security, National Economic Council director Al Hubbard.

"I'm confident we will get this passed, and the president is confident we will get this passed," Hubbard told policy analysts and reporters at a Hoover Institution luncheon Tuesday.

Hubbard said Bush "is just not going to back off."

Bush wants to allow workers to divert part of their payroll taxes to private individual accounts while reducing the growth of Social Security benefits to stabilize the finances of the 70-year-old retirement program. Although Bush continues to travel the country campaign-style to promote the idea, it has slipped steadily in the polls.

A May Gallup Poll found support for Bush's handling of the issue had sunk to 33 percent.

Sen. Max Baucus of Montana, the Finance Committee's top Democrat, said he will not negotiate until Bush abandons his support for private accounts.

Grassley burst out in frustration after Wednesday's hearing.

"The most obvious thing you heard today is that on the Democratic side of the aisle, it doesn't matter what you put out, what you talk about, there's no plan on the other side, and there's constant criticism," Grassley said.

"If there's a major problem we have to be dealing with, surely every idea that's put on the table can't be bad now," Grassley said. "And surely everybody that knows there's a problem ought to be willing to put some ideas on the table if they don't like the ones that are on the table. Or they also shouldn't be saying there's a problem."

Witnesses told the panel the program is facing a financial crunch when the Baby Boom generation retires starting in three years. Benefit costs are expected to exceed payroll tax revenues in 2017.

Grassley asked the Congressional Budget Office to examine a range of ways to reduce benefit growth by changing indexing formulas and raising the retirement age. The office also looked at several ways to increase revenue, such as by raising the $90,000 threshold on income subject to payroll taxes.

Russell George, inspector general for tax administration at the Treasury Department, said many professionals and small businesses are exploiting a payroll-tax loophole by setting up subchapter-S corporations, limited partnerships and other entities that can pay out the bulk of their income as profits and minimize salaries, thus avoiding the 12.4 percent Social Security payroll tax.

Baucus slammed Bush's proposed benefit changes as "drastic."

Changes to indexing formulas "cut benefits for Social Security beneficiaries far too deeply," he said. "We need to scour other ideas for improving Social Security's long-term finances."

After the hearing, Baucus said, "The linchpin here is private accounts. Once they're off the table, I think there would be a huge, or a significant, groundswell for trying to find a solution."

Hubbard refused to say whether Bush will accept a proposal without individual accounts funded by Social Security payroll taxes.

"We see no reason why people shouldn't be given that option," Hubbard said.

But he also said the administration is receptive to the "add-on" individual accounts Democrats favor. Those are private accounts that would supplement Social Security benefits, but they would be financed in ways other than using payroll taxes that now support Social Security.

"The president believes that no solution that is fair to younger generations" would lack private accounts, and using the payroll tax "is the appropriate way" to fund them, Hubbard said.

"At the same time, we're open to other ideas," he said.

At Wednesday's hearing, Urban Institute analyst Eugene Steuerle urged the committee to change Social Security to protect the elderly.

"Unfortunately, as now scheduled, the legacy we are about to leave our children is a government whose almost sole purpose is to finance our own consumption in retirement," Steuerle said.

With early retirements and longer life expectancies, he said, Social Security has "morphed into a middle-age retirement system."

It appeared more than ever after Wednesday's Senate hearing that Bush's hopes on Social Security rest with House Ways and Means Committee Chairman Rep. Bill Thomas, R-Bakersfield, who is crafting a much more sweeping plan aimed at "retirement security."

Thomas is looking at a wide range of tax, health care and other changes in addition to Social Security in the hope of luring Democrats.