Proposal could help anticipated Social Security shortfalls
CHICAGO (Chicago Tribune), May 10, 2005:
Despite the lukewarm public reception for President Bush's Social Security proposals, Republicans in Congress are pressing ahead with plans to overhaul the system with a combination of changes that could include raising the retirement age.
Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee, will begin hearings on Social Security restructuring Thursday with hope of shaping a bill that would go beyond and likely modify the president's proposals.
With solid Democratic opposition and no unanimity in GOP ranks, approval of a Social Security bill this year is considered unlikely in many quarters. Democrats have served notice they will not negotiate as long as Bush's proposal for individual private accounts is on the table.
But Thomas and his Senate counterpart, Sen. Charles Grassley (R-Iowa), chairman of the Finance Committee, are trying to generate support and force action by developing specific proposals to deal with Social Security's future money shortage.
According to a House Ways and Means Committee spokeswoman, the chairman is in favor of a broad package of changes that would affect retirees, including the president's plan to slow the growth in Social Security benefits, individual private accounts and incentives to cause Americans to save more.
Thomas also is considering proposals to raise the retirement age, she said, even though he has yet to put his support behind them.
"Everything is on the table," she said.
Increasing the retirement age is a key proposal in a Social Security bill introduced by Sen. Chuck Hagel (R-Neb.), and Thomas has spoken kindly of it.
Mid-income class shouldn't feel the brunt
Thomas has made clear, as did Grassley during town hall meetings in Iowa, that Bush's proposal for "progressive indexing" of benefits - slowing the growth in benefits for all but low-income Americans - would likely be changed by Congress to soften the effect on middle-income workers.
Bush endorsed a proposal by mutual fund executive Robert Pozen that would trim promised benefits for future retirees. It would continue to index the initial benefits of workers earning $25,000 or less a year to the average growth in wages over their working careers.
For those earning more than $113,000 a year, Pozen would index their initial benefits to prices, which tend to rise less than wages. For those in between, he would use an index that blended wage and price increases.
Democrats have called this proposal unacceptable because of its impact on middle-income workers. The Congressional Research Service said in a report that over 75 years, middle-income wage earners would see their promised benefits trimmed by 39.3 percent, while wealthy taxpayers would be hit with a 51.5 percent cut.
Yvonne Storey, 57, of Oak Brook, Ill., a consultant who lost her job when her high-tech employer downsized a few years ago, called for even-handedness in reducing benefits.
"If anybody is going to bite the bullet, you want to make sure you are getting a fair shake," she said. She also said Congress should reduce its own generous retirement benefits as it cuts those of working people.
Build your own nest egg
As he has done in the past, House Ways and Means Chairman Thomas also favored increasing incentives for Americans to increase their savings so that reliance on Social Security will be reduced and more people will have bigger nest eggs when they retire. He also is considering a plan to make it easier for elderly Americans to purchase long-term health-care coverage.
Grassley also has expressed interest in a broader package that would deal with pensions.
The Ways and Means spokeswoman said Thomas would focus on dealing with solvency of the system, the president's plan for private accounts and pension reform.
As for increasing the retirement age, she said, "We just need to talk about and think about that."
Under the 1983 Social Security reform law, the retirement age will be gradually increased to 67, although it would be 2027 before it reaches this point. One idea advanced within GOP ranks would accelerate the retirement age increase to 67 so that it occurs a few years earlier than 2027.
Robert Reischauer, president of the Urban Institute, noted that the Bush progressive indexing plan would cover only 70 percent of Social Security's funding shortfall over the next 75 years. He said a more balanced approach is needed that would include a trimmed version of the Bush proposal, an increase in the retirement age and a change in the cost-of-living index to lower annual inflation adjustments for retirees.
Hagel's proposal is apt to get a close look. It would raise the retirement age to 68. Then he would trim the Social Security benefits of those who choose early retirement at age 62.
After the maximum retirement age is attained, the Hagel plan would index Social Security benefits to life expectancy. It would work like this: If Americans are living two months longer on the average in a given year, Social Security benefits would be adjusted downward slightly to reflect the fact that people are living longer. By William Neikirk
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