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Middle ground emerges in Social Security fight

Compromise plan may supplement the system with individual investment accounts.

Social Security remains one of the most ideologically charged and politically touchy issues facing policymakers today.

But in the debate over the federal retirement system, riddled with long-term financial problems, a delicate middle ground has begun to emerge.

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According to a wide variety of participants in the White House conference on Social Security last week, the basic architecture of a potential compromise can be seen.

It looks like this: Make traditional Social Security sustainable, either by reducing benefits in some way or bringing in more income. Then allow for some form of individual investment accounts as an "add-on" to the current system. The payroll tax of 12.4 percent would remain dedicated only to traditional Social Security.

These add-on accounts would generate a second stream of income that would supplement the traditional benefits.

Add-on accounts are "the obvious point of congruence" at this early stage, says Robert Reischauer, former head of the Congressional Budget Office and a presenter at the conference. However, he cautions, "when you begin specifying the details, that could disappear."

Other analysts agree that the method for "adding on" could make or break the idea. One idea would be to allow workers to put aside additional money from their paychecks, an add-on to the 12.4 percent that's already taken out to pay for the current Social Security system. But such an additional set-aside would feel like a tax increase, which could hurt its chances of approval, particularly among Republicans.

Another source of funds for add-ons would be to take money out of the budget surplus and put it directly in accounts for workers. Such a plan might feel like a free lunch, but it would mean the money wouldn't be available for tax cuts or spending on government programs, another possible source of objection.

A third source of funds for add-on accounts would be simply to cut spending from other government programs.

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What was striking and new in last week's conference was that liberal Democrats showed "some willingness to go with individual accounts if they're added on," Martha Phillips, executive director of the Concord Coalition, a nonpartisan group that promotes fiscal prudence.

Rep. Richard Gephardt of Missouri, the leader the Democrats in the House, said he could support such accounts as long as they weren't funded out of current payroll taxes.

Typically, liberal Democrats have rejected any form of individual accounts, calling them the "wedge" that could lead to greater privatization of Social Security.

Many Democrats instead would prefer that the government itself invest some of the budget surplus in the markets. Such investment would have to be done in a way that safeguards against government interference with corporate policies, as is the case with government pension plans.

At last week's session, President Clinton expressed his most overt support to date for market investment in Social Security.

After the two-day conference, the director of the White House's National Economic Council, Gene Sperling, told reporters: "There was substantial agreement to the notion that there should be some effort to bring higher returns into the Social Security system."

MANY obstacles stand in the way of possible progress on Social Security. One is that the system isn't really in a crisis - it will begin to run shortfalls in 2032 - so a true sense of urgency is lacking. Another potential for derailment is the impeachment process.

If the House impeaches Mr. Clinton, the Senate could be consumed by a trial for months. But "if there's no impeachment, and if Clinton can stay focused on this, he has the ability to hold Congress's feet to the fire and get this done," says a major lobbyist on Social Security.

By the end of 1999, the coming presidential race will also consume any efforts at major policymaking. Already, the effects of 2000 have begun to show. Early in 1998, Rep. John Kasich (R) of Ohio, a key voice on budget issues, put forth a plan that would take 80 percent of the budget surplus and establish "add-on" private investment accounts for workers.

Over the summer, Mr. Kasich came out with a new plan that would take 50 percent of the surplus and return it to the people as a tax cut. The other half of the surplus would be used to strengthen Social Security, either by paying down the debt or to fund transition costs for a reform of the system.

"This is John running for president," says another Social Security activist. "He wants the tax cuts."

Sen. Paul Wellstone (D) of Minnesota, another presidential aspirant, has also made it clear he wants his voice heard on Social Security.

"I will raise heck about privatization proposals," says Mr. Wellstone, one of the Senate's more liberal members. "And I will make the point that if they bleed revenue from the current system, it will only make it worse."

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