Washington President Bush, trying to set off a depth charge under Social Security negotiations, on Thursday proposed asking future middle and higher-income retirees to accept smaller benefit checks than they're currently slated to receive.
In a prime-time news conference, Bush said a system in which benefits for low-income workers "grow faster than for people who are better off would solve much of the solvency problem" facing the government retirement program.
"I propose that future generations receive benefits equal to or greater than the benefits today's seniors get," he said. But a White House fact sheet suggested changes that include lower benefits than currently planned for all but lower-income future retirees.
"Social Security worked fine during the last century, but the math has changed," the president said. He cited figures from the system's trustees showing that the program in 2017 will start paying out more in benefits annually than it takes in from payroll taxes.
Bush did not lay out any specific ideas in his news conference, but a fact sheet distributed by the White House said "benefit increases for wealthier seniors should grow no faster than the rate of inflation," adding that "this reform would solve approximately 70 percent of the funding problems facing Social Security."
Both the White House document and a news release issued by the Republican National Committee during the news conference embraced "progressive indexing," in which benefit payments for low-wage workers remain linked to wage growth, benefits for higher-wage workers are shifted to a slower growing price index and workers in between receive payments based on a mixture of the two indices.
"I will work with Congress on any good-faith proposal that does not raise the payroll tax rate and harm our economy," the president said.
Nonetheless, he stood by his call for private investment accounts for younger workers.
"I feel strongly that there needs to be voluntary personal savings accounts as part of the Social Security system," Bush said. "It's got to be part of the comprehensive package."
Republicans immediately responded, with Rep. Bill Thomas of California, head of the House Ways and Means Committee, announcing a fresh round of Social Security hearings.
Thomas' Senate counterpart, Sen. Charles Grassley, R-Iowa, announced that the Senate Finance Committee would hold another Social Security hearing next month and aim to produce a bill for the full chamber to consider by July.
Democrats, meanwhile, labeled Bush's insistence on private accounts a nonstarter.
"His privatization plan would slash guaranteed Social Security benefits and burden future generations with trillions of dollars of new debt largely borrowed by China and Japan," said a joint statement issued by Senate Minority Leader Harry Reid and House Minority Leader Nancy Pelosi.
Social Security currently takes in more in payroll taxes than it pays out in benefits to about 47 million recipients, including retirees, the disabled and survivors. That trend is projected to end in 2017, after the baby boom generation has begun retiring. By 2041, the system will have exhausted a trust fund built up to continue paying full retiree benefits. Then, according to program analysts, payroll taxes will be able to cover only about 72 percent of promised benefits.
Robert Pozen, chairman of Boston-based MFS Investment Services, has authored the "progressive indexing" proposal that would help achieve long-term solvency for Social Security along the lines of what Bush proposed Thursday night.
Currently, Social Security checks increase each year based on wage growth. That places a strain on the program, prompting some to suggest it start base future checks on the growth of slower rising prices. Pozen has proposed a blend of the two indexes.
He suggested retaining wage-indexing for the lowest 30 percent of wage earners, using price indexing for some subset of the highest wage earners, and a blend of the two indexes for workers in between. For instance, a middle-income worker whose annual earnings before retirement were $25,000 to $113,000 a year might see the growth of his Social Security check affected 50 percent by wages growth and 50 percent by price growth. The program would apply to everyone becoming eligible for benefits after 2012.