By TAMARA LYTLE

Orlando Sentinel

8/23/01

WASHINGTON - Future Social Security benefits might have to be cut to shore up the federal retirement system, the leader of a presidential panel said Wednesday.

It's the first time that Richard Parsons, chairman of the President's Commission to Strengthen Social Security, has acknowledged that cuts might be needed. The main focus of the president's commission remains the creation of private investment accounts - an idea that has come under increasing criticism amid a stagnant stock market. Republican Parsons, handpicked by President Bush to find a way to fix Social Security, said his group was looking at "downward" adjustments to benefits.

He did not go into details, but his co-chairman, Democratic former Sen. Daniel Patrick Moynihan, has endorsed raising the retirement age beyond 67 and trimming cost-of-living ncreases. "One of the variables you look at . . . is the level of benefits," said Parsons, whose panel is expected to make a recommendation this fall.

Bush has said he will push a private-account plan in Congress next year. Critics of the investment accounts said Parsons, chief operating officer of AOL Time Warner, is only admitting what opponents have long said: Private accounts are not a panacea.

Pulling money out of Social Security's main system (it would only be the surplus) to fund the private accounts would leave it unable to pay its bills without tax increases, benefit cuts or some other influx of cash, said Henry Aaron, a scholar at the liberal Brookings Institution. "The only thing that's surprising is it took so long for them to understand the rules of basic arithmetic," Aaron said.

Bush has ruled out tax increases to fix Social Security. New White House estimates released Wednesday show that Bush's recent tax cut, along with spending approved by Congress, has eaten away at the nation's budget surplus, which some advocates for seniors had hoped could be used to shore up Social Security. (meaning put more bogus debt bonds in the trust fund while spending the real cash)

The Social Security system is currently taking in more taxes than it pays out in benefits. But starting in 2016, as baby boomers begin to retire, the tide will change. To keep the system in balance for 75 years without making changes in benefits or taxes would cost $3 trillion, according to the National Committee to Preserve Social Security and Medicare. Bush has said private accounts could solve the problem by offering a higher rate of return on the Social Security investment. (remember: Soc.Sec. will take in $3.5 trillion in surplus during the next 10 years. Invested properly, where would it stand in 2016 when the ficticious baby boomers are supposed to be a problem)

Taxes for the retirement system now are invested in U.S. treasury bonds. The Bush proposal would allow taxpayers to divert 2 percent or so of their incomes from Social Security taxes to private stock or bond accounts. The rest of their Social Security taxes would stay in the old system to pay for current retirees and for a safety net for younger generations in case the private accounts do not earn enough.

Parsons and Moynihan said the president's Social Security commission will preserve some sort of safety net and will continue benefits for disabled people and for survivors such as widows. Also, Bush has warned the panel not to propose cutting benefits for current retirees or those nearing 65.

The commission on Wednesday listened to managers of two large retirement systems - the federal employees' Thrift Savings Plan and TIAA-CREF, which covers educators. Those systems are managed with low administrative costs and could be a model for a Social Security investment system, they said.

But as the panel met at a Washington hotel, opposing views were everywhere. Nearly every meeting room near the panel's ballroom was filled with interest groups holding news conferences about the controversial private accounts. The hotel was a swarm of stickers, hats, signs and activists. In one room, groups representing women, labor, disabled people and minorities railed against the private accounts.

While activists jammed one meeting room, gray-suited scholars from the conservative Heritage Foundation gathered upstairs to talk about the benefits of private accounts. Such accounts would allow younger workers to accumulate more retirement money and then pass it along to their heirs someday, the scholars said. Heritage scholar David C. John said the "ostrich" crowd that opposes private accounts has not come up with a better way to solve Social Security's future imbalance.

Without some change, the system will be able to afford to pay only 73 percent of promised benefits starting in 2038, according to experts. But the nonpartisan Congressional Research Service came out with a report this week that benefit cuts will be necessary even with private accounts.

In a separate report, the Center for Budget and Policy Priorities, a liberal think tank, said private accounts would mean benefit cuts as high as 40 percent.

Moynihan said he's not worried about selling the private accounts idea to the public even as the slumping stock market reminds investors of its risks. "Things go up and things go down, but we're trying to think in half-century terms," Moynihan said. "We're thoroughly optimistic."

Bush foreordained some of the panel's conclusions by loading it with supporters of private accounts. That hurts the panel's credibility, said Robert Greenstein of the liberal think tank Center for Budget and Policy Priorities. So did the commission's decision to hold its morning meetings in private Wednesday, he said.

Parsons said attorneys allowed the closed-door meetings because the sessions were informational only. But Common Cause President Scott Harshbarger disagreed. "The commission's action creates the appearance that the real work of the commission is being done behind closed doors and the public part is just performance art - a kind of dog and pony show staged to make it look like an open and transparent process," he said.