Clinton drops proposal for investing Social Security taxes in stock market

President would shore up system using projected federal budget surpluses

October 24, 1999|By NEW YORK TIMES NEWS SERVICE

WASHINGTON -- President Clinton dropped one of the most contentious elements of his plan for bolstering Social Security's finances yesterday and called on Congress to break the partisan deadlock over how to prepare the retirement system for the aging of the baby boom generation.

In his weekly radio address, Clinton said he would send Congress legislation based on a proposal he floated earlier this year to shore up Social Security with projected federal budget surpluses. The new version will not include Clinton's long-standing call for the government to invest some Social Security taxes in the stock market.

`Straightforward bill'

"The American people deserve more than confusion, double talk and delay on this issue," Clinton said. "So it's time to have a clear, straightforward bill on the table, and next week I plan to present one -- legislation that insures that all Social Security payroll tax will go to savings and debt reduction for Social Security."

Social Security is now taking in more than $100 billion a year above what it is paying to retirees, but as the baby boomers retire, payroll taxes will no longer cover benefits.

In a signal of his desire for bipartisan cooperation, White House officials said Clinton was withdrawing for now his plan to seek higher returns for the system by having the government invest as much as 15 percent of Social Security's reserves in the stock market.

Republicans had rejected the idea of the government's investing in equities, saying it would amount to federal ownership of private industry. Most Republicans have rallied instead around alternatives under which people would themselves be able to invest part of their Social Security payroll taxes.

Although Republicans are sure to welcome Clinton's concession, they long ago dismissed the rest of the president's basic approach, which is built around reducing the national debt and then capturing some of the interest savings on the retirement system's behalf. Republicans have often said Clinton's underlying plan is nothing more than an accounting shell game that fails to address the fundamental mismatch between promised benefits and the revenues to pay them.

Solvency extended

The White House said its plan would extend Social Security's solvency from 2034, when under current projections it would be able to pay only 75 percent of promised benefits, to 2050, beyond the life span of most of the 76 million Americans born in the 18 years after World War II.

"What we have tried to do is present what we feel is the most solid, bipartisan, hopefully uncontroversial proposal to lock away the Social Security surpluses for debt reduction, and use those interest savings to extend the solvency of Social Security," said Gene Sperling, the director of the White House's National Economic Council.

Clinton's announcement was in part a last-ditch effort to make some progress this year on dealing with Social Security, which has more than lived up to its reputation as the most politically and ideologically charged of issues.

But it was clearly also an effort to put the White House back on the offensive after several weeks in which Republicans in Congress have used Social Security to attack Democratic spending proposals.

Both parties routinely agreed for decades to spend excess Social Security payroll tax revenues on general government operations. But this year they have pledged to balance the budget without using any Social Security money.

The fight has been less about Social Security itself than about exploiting an issue that both sides believe can play to their benefit in next year's elections.

Although members of both parties have come up with approaches to deal with Social Security's underlying problems, none of the plans has been given serious legislative consideration.

Sperling said Clinton's plan was intended to be a start on the broader goal of insuring Social Security's viability for at least 75 years.

"If we could get this significant down payment now, we will have done something historic and important in the time remaining, and we could still come back next year, or in the future, to get the rest of Social Security reform," Sperling said.

Clinton's plan is based on the idea that by using the Social Security surplus to pay down the national debt in coming years, the government's interest bill will decline substantially.

Reducing interest expense

By the White House's estimate, the government's interest expense will be $107 billion lower in 2011 than it would be if the Social Security surplus were not used, starting this year, to reduce the debt. Clinton's proposal would take the money saved because of the lower amount of debt, starting in 2011, and earmark it to shore up Social Security's finances.

From 2011 through 2015, the total savings in interest dedicated to Social Security would be $544 billion, Sperling said, and savings would continue accruing beyond 2015 at around $189 billion a year.

The savings would at first go to further reductions in the national debt. After the debt was paid off -- around 2015 under the White House's current forecast -- the savings would continue to be transferred to Social Security in the form of a government IOU that would later be redeemed to pay benefits.

Republicans said the plan would still require that the government eventually pay Social Security benefits using general revenues. In that way, they said, Clinton's plan would merely defer tough choices about raising taxes, cutting benefits or again increasing government borrowing.

Pub Date: 10/24/99

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