Washington President Bush on Thursday flatly rejected a payroll tax increase to shore up Social Security, narrowing the range of options available to lawmakers to address the retirement system's long-term financial needs.
"We will not raise payroll taxes to solve this problem," Bush told reporters after a meeting at the White House with Social Security trustees.
Although the president said he did not want to prejudge Social Security legislation under consideration in Congress, his declaration appeared to undermine two leading proposals for overhauling the program -- both of which include an increase in the payroll tax for some higher-income workers.
It also made it increasingly likely that any measure Bush signs into law will rely on borrowed money and reductions in promised benefits for future retirees to finance the creation of private investment accounts and make the system financially sound.
Bush has placed Social Security at the top of his second-term policy agenda. He has asked Congress to approve a plan to let younger workers divert a portion of their payroll taxes into private investment accounts that they would control.
Diverting money into private accounts, however, would deprive the Social Security system of money needed to pay benefits to current retirees. Economists have estimated that it could cost $1 trillion to $2 trillion over the next decade to replace the payroll taxes that would be diverted into private accounts. The additional federal borrowing could put upward pressure on interest rates, some analysts say.
White House officials contend the additional debt would be more than offset by the eventual reduction of Social Security's long-term unfunded liability, which they estimate at $11 trillion over 75 years. Their argument assumes that future benefits would be reduced to offset the creation of private accounts.