Gore to unveil stock-based savings plan

Proposal resembles Bush's initiative for retirement benefits

GOP calls it a flip-flop

But programs differ: Vice president won't touch Social Security

June 18, 2000|By Jonathan Weisman | Jonathan Weisman,SUN NATIONAL STAFF

WASHINGTON - Early last year, when President Clinton proposed using $250 billion of the budget surplus to create millions of individual retirement accounts, Vice President Al Gore balked, fearing the plan would cost too much and do too little for poorer workers struggling to save their money.

On Tuesday, with great fanfare, Gore will unveil a new Family Savings Account proposal that will look remarkably like the Clinton plan he once viewed skeptically. The conversion was fueled by politics, swelling surplus projections, and a change of heart by some of his key economic advisers.

And it could fundamentally change the tone of the debate between the likely presidential nominees over Social Security.

"I'm a convert on this," said Alicia H. Munnell, a finance professor at the Boston College Carroll School of Management and a Gore economic adviser.

Gore's proposal is almost certain to blur the distinctions that he hoped to draw between his efforts to boost retirement savings and Texas Gov. George W. Bush's plan to partially privatize Social Security.

Both candidates now support allowing individuals to invest tax dollars in the stock market to build retirement wealth. Democrat Gore's tax dollars would come out of general revenues, like income taxes. Republican Bush's would come from Social Security taxes.

The distinctions between the plans are significant.

Bush would divert a yet unspecified percentage of Social Security payroll tax to individual savings accounts that could be invested in the stock market.

Because almost all those payroll taxes go toward Social Security benefits for current retirees, the diversion - as much as $1 trillion over 10 years - would have to be made up out of the projected federal budget surplus to ensure that seniors would not see a benefit cut.

Over time, Social Security's guaranteed benefits would be cut under privatization plans like Bush's, though in theory, those cuts would be more than offset by higher returns on investment from the individual savings accounts.

Gore would not touch the current Social Security system. Instead, he would add a supplementary government program that would use federal matching grants to entice individuals to open private retirement accounts. For low-income workers, the match will likely be dollar-for-dollar, with a cap of $2,000 a year.

Gore aides say the plan will make savings as simple as possible, perhaps by allowing taxpayers to check a box on tax returns that would instruct the Internal Revenue Service to deposit tax refunds in a private account.

"It is a classic, Clintonesque move," said William G. Gale, a Brookings Institution economist who studies savings issues. "He's saying, `I'm giving you privatized accounts, but I'm not cutting Social Security benefits. Bush is giving you privatized accounts, but he is going to cut your Social Security benefits.'"

Arguments undercut

Still, advocates of the Bush plan note that Gore may have undercut some of the fundamental arguments against Social Security privatization. Last month, Gore blasted Bush's plan as "stock market roulette," yet now he supports the investment of tax dollars in the stock market.

Also, opponents of Social Security privatization, Gore among them, have long argued that the creation of millions of individual accounts would create enormous administrative costs and difficulties. Some of those difficulties would surely emerge with Gore's Family Savings Accounts as well, Gore aides admit.

"He now concedes the fact that individual accounts are feasible, they can be set up and administered, and people are smart enough to invest on their own," said Michael Tanner, director of the libertarian Cato Institute's Project on Social Security Privatization.

Gore aides and advisers admit it was a mistake to focus the vice president's attacks on the risks of the stock market. Instead, the criticism should have been confined to the high transition costs and expected cuts in guaranteed Social Security benefits.

And they fully expect to be blasted by Bush for the apparent flip-flop. Indeed, Bush aides could not wait for the plan to be formally rolled out Tuesday.

"It's interesting to see that he has changed his position for the third time in one year," said Bush campaign spokesman Dan Bartlett. "Once he realized his scare tactics wouldn't work, he thought he'd better change his tune."

But Gore aides insist the criticism is wrong.

"Gore has had a very consistent position on investing in the stock market," said one campaign aide. "He's always said we ought to encourage investment, but we should have Social Security as a true, guaranteed benefit."

Polls and surplus

The vice president's embrace of private accounts was almost certainly driven in part by polls that show wide support for Bush's proposal, said Robert D. Reischauer, director of the Urban Institute.

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