The Washington Post

December 12, 2001, Wednesday, Final Edition

SECTION: A SECTION; Pg. A33

Social Security Panel Proposes 3 Reform Plans; Cost of Changing System Is Pegged at $2 Trillion

by Amy Goldstein, Washington Post Staff Writer

A presidential commission yesterday embraced three proposals that would allow workers to invest some of their Social Security taxes in the stock market in an effort to define the debate over the future of the country's largest -- and politically touchiest -- domestic program.

At its final meeting before it goes out of business, the President's Commission to Strengthen Social Security acknowledged for the first time that such a profound change in the nation's retirement system would eventually cost at least $ 2 trillion, though it did not suggest how to pay for it. The panel also concluded that Social Security cannot be rescued from the financial precipice it will reach by the middle of the next decade without cutting benefits for retirees and disabled Americans, using money from elsewhere in the federal budget, or both.

Yesterday's unanimous vote culminated seven months of work by the panel to build a case -- and political momentum -- for the contentious changes to Social Security that were a central feature of President Bush's campaign agenda last year. Whether the strategy will work remains highly uncertain, according to politicians and policy analysts on opposing sides of the issue. The panel's 165-page report -- and its decision not to produce a single plan -- ignited a partisan firefight, as liberal interest groups and key congressional Democrats denounced the panel's work. Republicans, Democrats and commissioners themselves said yesterday that any effort to translate the panel's ideas into legislative action will be deferred for at least a year, until after next fall's elections.

The panel's unanimity was a vivid contrast to several high-profile commissions over the past decade that also have sought to devise a way to steer the Social Security system onto solid fiscal ground, but ended up splintered into factions. "This is the first time a national panel appointed by a president recommended that Americans acquire wealth" through individual retirement accounts, said former senator Daniel Patrick Moynihan (D-N.Y.), one of the two chairmen.

The cohesiveness this time reflects a deliberate strategy by the administration to appoint to the panel last spring only people who said that they agreed with several principles Bush set forth -- including the private retirement accounts and a promise not to raise taxes or to curb benefits for Americans who already are retired or will be soon.

As a result, the 16 members, while divided evenly between Democrats and Republicans, did not engage in the ideological tug-of-war that typifies most discussions over Social Security's future. Instead, commissioners used their public meetings, including the final one yesterday, to explain, praise and defend the approach the administration requested.

The commissioners also dwelled on the frailties of the current system, particularly what they called inequities that harm minorities, women and low-income Americans, who have been especially reliant on Social Security benefits -- a characteristic the panel's detractors dispute.

The White House praised the commission's work. "They have clearly made a case for private accounts," said White House spokeswoman Claire Buchan, "and we look forward to a national discussion as to how best to bring those about and ensure the long-term viability of the . . . system."

As they convened for the last time, panel members repeatedly sounded sensitive to the criticism of their work. In particular, the chairmen sought to deflect suggestions that they had flouted Bush's instructions by failing to produce a single plan. Moynihan said that he and the panel's other chairman, Richard D. Parsons, had met with Bush in the Oval Office on Oct. 30, and that Bush had told them that "the best procedure would be for us to come up with a number of plans."

Moynihan and Parsons said that Bush, who last spring had indicated changes to Social Security would be one of his main goals for the coming year, said during that meeting that he now would rather wait for another year for legislation, because the country was now at war and "the world had changed." Asked yesterday whether the president was stalling on a crucial problem, Parsons replied: "I don't think he has backed up one iota."

Specifically, the three approaches the panel advocated share several features. They call for voluntary, private investment accounts; try to improve the program's fiscal stability; and -- in two cases -- attempt to provide more help to women and retirees who had low wages throughout their working lives.

The simplest plan would let workers divert 2 percent of their payroll taxes into individual investments, but would otherwise leave the program unchanged. A second alternative would allow workers to invest more of their taxes, but would constrain benefits by changing the method to determine the size of retirees' checks when they first sign up -- adjusting them to keep pace with inflation, rather than wages, which traditionally have increased more rapidly.

Under the third plan, workers would be required to devote 1 percent of their own earnings to retirement accounts before they could invest 2.5 percent of their payroll taxes. This method would try to stabilize the program's finances through an infusion of general revenue, as well as through subtler adjustments in the size of benefits and incentives to work longer.

Opponents of individual investment accounts said the alternatives the commission has embraced essentially demonstrate that the stock market cannot, by itself, alleviate Social Security's impending financial crisis. "Privatization has no relevance to solving Social Security," said Rep. Robert T. Matsui (Calif.), ranking Democrat on the Ways and Means Committee's Social Security subcommittee.

"Privatization is a gimmick for some on Wall Street to feather their own nest." Matsui and other key Democrats also criticized Bush and the panel for deferring the issue until after next year's campaign season -- and for avoiding a single proposal. "We know what the options are. I was kind of hoping to get a recommendation," said Sen. John Breaux (D-La.), chairman of the Senate special committee on aging.

Rep. Jim Kolbe (R-Ariz.), a longtime champion of Social Security changes, including individual investment accounts, said that he, too, believed a single recommendation would have been "more forceful."