WASHINGTON -- Social Security reform is emerging as one of the top issues in next year's race for the White House. Many of the leading contenders for the Republican and Democratic tickets are staking out their positions on this issue early on.
While few of the candidates have detailed proposals for resuscitating the Social Security system, all of the leading Republican candidates broadly favor letting workers invest a portion of their Social Security payroll taxes directly in the securities markets through IRA-type accounts.
Most recently, GOP front-runner George W. Bush and his rival Elizabeth Dole signaled their support for such an approach, joining millionaire publisher Steve Forbes, Sen. John McCain, R-Ariz., and Rep. John Kasich, R-Ohio, who already had stated their preferences for giving individuals some measure of control over investing their Social Security taxes.
Last week, former Vice President Dan Quayle joined the other Republican contenders in supporting private accounts, but instead of using the payroll tax itself to invest in the securities markets, he would let individuals invest part of the current Social Security surplus. On the Democratic side, Vice President Al Gore is wedded to the Clinton administration proposal to invest part of the Social Security trust funds directly in the stock market, and strongly opposes giving individuals any form of control over investing their payroll taxes.
Bill Bradley, the former New Jersey senator, wants to take Social Security out of the federal budget calculations, but has not yet developed a plan for fixing it. A spokesman for Mr. Bradley said he will unveil his position sometime in the fall.
Social Security experts agree that Republican and Democratic presidential wannabes will likely duke it out over privatization.
"We believe (Social Security) is probably going to be one of the top three or four issues of this campaign. We find it encouraging that so many candidates have taken a position so early," said Michael Tanner, director of health and welfare studies at the Cato Institute, a Washington-based Libertarian think tank that strongly favors privatization of the system.
Sylvester J. Schieber, research director at Watson Wyatt & Co., Bethesda, Md., agrees.
"On the Republican side, Steve Forbes is going to try and force it on the agenda. He made it an issue last go round. He has already made it quite clear he intends to make it part of his agenda, and he is going to try and draw Bush out," he said.
Bush backs accounts
In fact, Mr. Bush, who has avoided being specific about many key issues, finally endorsed individual retirement-type accounts for Social Security recently on the campaign trail in Iowa and New Hampshire.
"We must be prosperous to keep our commitments to the health and security and dignity of the elderly. And we should trust Americans by giving them the option of investing part of their Social Security contributions in private accounts," the Texas governor said.
Social Security reform "is definitely a priority," for Mr. Bush, his spokesman said, even though the GOP front-runner has not yet developed a formal proposal. He does, however, oppose raising payroll taxes or altering benefits, according to the spokesman.
Dole endorses 'lockbox'
Ms. Dole also has discussed her thoughts on Social Security in sketchy terms at townhall meetings. She favors a "lockbox" approach, setting aside the entire Social Security surplus to pay for strengthening the system; she supports the creation of individual Social Security accounts; and she opposes President Clinton's proposal to let the government directly invest a portion of the assets in the stock market, according to a spokesman.
Meanwhile, Mr. McCain, chairman of the Senate Commerce, Science and Transportation Committee, opposes the lockbox approach adopted by the House of Representatives late last month because of a loophole that would let lawmakers divert Social Security funds for unspecified emergency spending legislation.
McCain wants it off budget
Instead, he would take Social Security completely off the budget to prevent any raids on the trust fund. Mr. McCain also is a strong proponent of individual accounts, and in speeches and a position paper has said he would use federal budget surpluses and spending cuts to pay for the huge cost of moving to individual accounts from the current system.
But, while Mr. McCain introduced legislation at the end of May that would repeal Social Security cuts imposed on older Americans who earn more than a stated limit, he has not yet introduced any legislation fleshing out his individual account proposal -- although he has not ruled out doing so, according to a campaign spokesman.
Kasich near legislation
Meanwhile Mr. Kasich, chairman of the House Budget Committee, is close to introducing legislation that would detail his approach: letting workers younger than 55 directly invest a portion of their payroll taxes through personal accounts, according to Bruce Cuthbertson, a spokesman. Low-income workers would be allowed to invest 3.5 percentage points of their payroll taxes, while higher income workers would be allowed to invest only one percentage point of their payroll taxes.
Individuals either would have a limited array of investment options, or be able to pick from federally approved mutual fund companies, but Mr. Kasich has not yet pinned that down.
He also would link the growth in initial Social Security benefits to the consumer price index instead of salary increases, slowing down the rate at which benefits would grow over time and wiping out the system's shortfall by 2066 at the latest.
In this plan, Mr. Kasich has moved away from the approach he advocated last year of divvying up the budget surplus among all Americans contributing to the system.
Quayle's 'Freedom Accounts'
Mr. Quayle, like other Republican presidential aspirants, supports individual accounts, but he also would establish "Freedom Accounts" outside of the Social Security system, which loosely resemble the Roth 401(k) proposal detailed earlier this year. Mr. Quayle's proposal would let individuals contribute up to $10,000 in after-tax money to these accounts, which would grow tax free. Individuals would not pay any taxes on their savings at retirement. Additionally, Mr. Quayle also would let all workers place up to 1.86 percentage points of their Social Security payroll taxes into these new accounts.
Forbes most aggressive
The most aggressive proposal to overhaul the system is offered by Mr. Forbes, who would give individuals at least 10 to 15 years away from retirement the choice of investing as much as eight percentage points, or two-thirds of the combined employer-employee Social Security payroll taxes, in the stock market through personal retirement accounts, similar to IRAs or 401(k) retirement plans.
He would let individuals choose mutual funds, switch between them as often as they like, and get periodic account statements. He would also establish a safety net, requiring the federal government to make up the shortfall if the stock market crashes or an individual's investments underperform and the account balance does not meet the minimum benefit. He would abolish taxes on Social Security benefits and make the personal accounts tax free.
Finally, Mr. Forbes also would place the Social Security program off budget, preventing the government from dipping into its surplus to pay for other programs.