Senators grapple with reform risks
4/27/2005WASHINGTON - A key Republican senator expressed misgivings yesterday about creating private Social Security investment accounts, signaling a tough battle ahead for President Bush's top domestic agenda item.
Sen. Olympia Snowe (R., Maine) joined Democrats on the Senate Finance Committee in questioning the merits of allowing workers to invest up to one-third of their Social Security taxes in the stock market in exchange for reduced guaranteed Social Security benefits.
The panel held a three-hour, 20-minute hearing that included intense exchanges over proposals for replacing the traditional benefit.
"We're at a juncture," Ms. Snowe said. "Do we believe in preserving the underpinnings" of Social Security or not?
She said 56 percent of the people in her state stay out of poverty only by Social Security.
"It is defined and it is guaranteed," she said.
"Do we want to tamper with it and incorporate the element of risk into the program by diverting money from the payroll tax to support personal accounts?"
Democrats - backed by organized labor, civil rights groups, and the senior-citizen lobby - have staked out a position against the Bush plan while saying they are willing to work on ways to shore up Social Security before the crush of the baby-boom generation begins to strain the system's finances in the next decade.
"There's no question in my mind that this program needs to be modernized," said Sen. Ron Wyden (D., Ore.), who agreed with committee Republicans opposed to raising the 12.4-percent Social Security payroll tax now split between employers and employees.
But the President's proposal, Mr. Wyden said, went beyond what Democrats could accept.
"I'm concerned that personal accounts unravel the social safety net," he said.
Sen. Charles Grassley (R., Iowa), committee chairman, said there are two problems to be solved. One is that without a fix Social Security will start running a deficit in 13 to 15 years, which would force a 26 percent cut in benefits for everyone. The other is whether personal accounts for younger workers should be legal.
"If there is ever going to be a bipartisan consensus for reform, the process must begin in this committee, and there's no time like the present to get started," said Mr. Grassley, who supports private accounts.
The ranking Democrat on the committee, Sen. Max Baucus of Montana, countered there is no point in negotiating unless private accounts are taken off the table. He said they are risky, won't make the system solvent, and don't address the needs of the disabled, surviving spouses, and children who depend on Social Security benefits.
After several hours of testimony, questioning of witnesses, and subtle digs at each other, nobody had changed his or her mind.
Michael Tanner, director of the Cato Institute Project on Social Security, insisted Congress must permit workers to choose to set up and manage their own accounts and pass any leftover funds to their heirs. He said the rate of return historically is better in the stock market than in Social Security, especially since some people die before collecting benefits.
But Peter Orszag, senior fellow at the Brookings Institution, said the answer is to limit estate taxes but not eliminate them as Republicans want to do and set aside a certain portion to make Social Security solvent. He said private accounts would make the solvency problems worse and would be like offering turnips for dessert if all the spinach is eaten first.
Before the hearing, 50 Wall Street brokers and investors signed a letter to Congress warning that no investor should risk more than he or she can afford to lose. Putting retirement funds at risk is dangerous, they said. Democrats such as Mr. Wyden pounced on the letter to argue personal accounts would add up to $5 trillion to the national deficit and not add to the nation's supply of capital.
At one point Mr. Grassley grew upset, saying he owes it to his granddaughter to do something.
"All I hear from people on the outside is no plan. I don't care if you don't talk to me. Those of you who are bad-mouthing every other plan out there, come up with a plan. Doing nothing is not an option," he said.
At a rally not far away, in front of a fountain in Upper Senate Park near the Capitol, several hundred opponents of private accounts gathered to hear a series of labor leaders, women's rights advocates, senior citizen groups, and lawmakers shout their opposition to the President's plan.
It was one of about 30 rallies across the nation yesterday.