Dec. 14 (Bloomberg) -- Robert Ball remembers when, as U.S. commissioner of Social Security, he became so alarmed at a political deal involving health-care legislation that he went to the White House to warn President John F. Kennedy.

``I said, `If this passes, it will be chaotic,''' Ball recalls of that 1963 meeting. ``Kennedy leaned over and patted me on the knee, and said, `Bob, let's have a little chaos.'''

For more than half a century, Ball has been at the center of every major battle over Social Security. Now, President George W. Bush and Republicans in Congress are planning the most radical changes in the program's 69-year history, proposing to allow younger workers to divert some of their taxes into private savings accounts. And Ball, at age 90, is strapping on the armor once again to defend the program he began working for 65 years ago.

Ball contends that Bush and his allies are overstating the extent of Social Security's fiscal problems in order to justify changes that will unravel a safety net that has kept millions of elderly people out of poverty and that will explode the federal budget deficit. He argues that Social Security, which its trustees said in March faces a $3.7 trillion funding gap over the next 75 years, can be shored up with relatively minor tax increases and benefit cuts.

``There's nothing about the present situation that is any more dangerous than it was'' when the program was thought to be in jeopardy in years past, Ball says. ``There are lots of ways to fix it other than privatization.''

Hidden Agenda?

Says Alan Blinder, a former vice chairman of the Federal Reserve and critic of private accounts: ``The true agenda here, I think, is to put a very big camel's nose under the tent. You start with partial privatization, and in a generation's time you have no Social Security system. The agenda is to go back to the 1920s.''

Ball, who was Social Security commissioner from 1962 to 1973, has a unique perspective on the issue, says Edward Berkowitz, a George Washington University professor who wrote the 2003 book ``Robert Ball and the Politics of Social Security.''

Ball joined the Social Security Administration in 1939, only four years after President Franklin D. Roosevelt created it. He was the staff director of the advisory panel that recommended changes that saved the program in 1950 by extending benefits to farm workers and other groups not covered, Berkowitz says.

In 1956, Ball helped encourage Congress to create Social Security disability insurance over the opposition of President Dwight Eisenhower. That health-care bill he fretted over with Kennedy became, two years later, Medicare, the health-insurance program for the elderly that fell under Social Security's jurisdiction until 1977.

Looming Bankruptcy

He has worked with Republicans as well as Democrats. In 1972, as commissioner under President Richard Nixon, he brokered a deal with Republicans to index Social Security benefits to the rate of inflation; in 1983, he sat on a commission along with Alan Greenspan, among others, that was set up by President Ronald Reagan to recommend ways to close a funding gap.

Today's Republicans, including Bush and allies such as Senator Lindsey Graham, a South Carolina Republican, argue that the current crisis is far graver. Without major changes, they say, Social Security -- which last year doled out $470 billion in benefits to one in six Americans -- will go broke, because it can't handle the impending retirement of the U.S. ``Baby Boom'' generation, the 76 million Americans born between 1946 and 1964.

`Have to Be Alarmed'

The system uses payroll tax dollars from current workers to fund benefits for current retirees. In 1937, there were 40 workers for every retiree; by 2030, that ratio will drop to 2.1 workers per beneficiary. Spending on Social Security, now at about 4.4 percent of gross domestic product, will increase to more than 6 percent by 2030, according to the Congressional Budget Office, Congress's nonpartisan research arm.

Graham, a sponsor of one private-account bill in the Senate, argues that preserving the current program is not an option. ``You have to be alarmed,'' Graham says. While the number of beneficiaries will surge by 65 percent from 2011 to 2030, the number of workers paying into the system will grow by 8 percent, he says. ``It's going to go bankrupt.''

Employees and employers each currently pay a payroll tax of 6.2 percent of the first $87,900 earned, while the self-employed pay 12.4 percent. Graham's proposal would allow workers to divert 4 percentage points of their taxes to private accounts. According to both Graham's plan and one advanced by a 2001 commission appointed by Bush, workers age 55 and younger would be allowed to participate; in return, they'd have their government-guaranteed benefits reduced.

Transition Cost

Since current retirees depend on the same tax dollars that would flow to private accounts, the government would have to fill the gap during the transition -- a cost that the Congressional Budget Office puts at $1 trillion to $2 trillion over 10 years.

Graham said in a Dec. 8 interview that a payroll tax increase might be needed for high-income earners, in order to win support from Democrats and allay their concerns about the transition costs. Bush, though, rejected the idea of a tax increase on Dec. 9, leaving benefit cuts, government borrowing and possibly raising the ceiling on the amount of income subject to Social Security payroll tax as the only ways to make up the shortfall.

Peter Diamond, an economist at the Massachusetts Institute of Technology in Cambridge, Massachusetts, who devised a plan to shore up Social Security without private accounts, said the transition costs will swell the national debt and destabilize Social Security.

`Economic Summit'

``You can't talk about transferring general revenue when you've got debt as far as the eye can see,'' Diamond said. ``You can't pretend that borrowing several trillion is harmless.''

While Bush hasn't yet revealed specifics of his own plan, it is likely to resemble Graham's in important respects; even without a formal proposal on the table, the president will use the ``economic summit'' he is convening at the White House tomorrow and Thursday to begin building political support for changing the system.

Opponents are mobilizing too, including AARP, based in Washington, which with more than 35 million members is the largest lobbying group for retirees, and Democrats such as Representative Robert Matsui of California, a member of the House Ways and Means Committee.

And then there's Bob Ball. From his home in a retirement community in Washington's Maryland suburbs, working out of a small office littered with paper piles and plastered with black- and-white photos of himself with Presidents Kennedy, Lyndon Johnson and Jimmy Carter, he is advising Democratic lawmakers and preparing articles arguing against the Republican plans.

`Bad for Society'

``A system in which part of the benefits depend upon investment return is a bad idea,'' he says. ``It's bad for the individual involved and it's bad for society.'' Democrats are more likely to support Bush's proposal if the private accounts are offered in addition to Social Security, instead of diverting current tax dollars, he says.

Ball argues that Social Security could remain solvent for the next 75 years through a combination of steps that don't involve taking money out of the system.

For instance, he says, Social Security recipients now receive cost-of-living increases tied to an index that measures changes in the price of a basket of consumer goods and services without taking into account the effect of buyers substituting one product for another when prices increase. Ball advocates tying benefit increases to an index that takes into account such substitutions, thus producing lower benefit increases.

Raising the Ceiling

He also advocates raising the ceiling on the amount of income subject to the payroll tax. The current ceiling covers 85 percent of all taxable income; he proposes raising the ceiling so it covers 90 percent.

And he wants to retain the federal estate tax; currently, legislation passed in 2001 calls for the law to be phased out until 2010, when it disappears entirely for a year. The tax is supposed to return in 2011, but Bush is pushing to make the repeal permanent. Ball says the tax should be kept where it will be at the 2009 level, as laid out in the 2001 legislation.

Leanne Abdnor, a member of Bush's 2001 commission and now president of For Our Grandchildren, an Alexandria, Virginia-based advocacy group that supports voluntary personal retirement accounts, disputes Ball's conclusions.

Private accounts would decrease the risk of seniors slipping into poverty, she says. She cites one commission proposal that would guarantee low-wage workers receive benefits keeping them at least 20 percent above the poverty line. That would lift 700,000 Americans out of impoverishment if enacted today, Abdnor said.

Broken Firewall

Ball also fails to consider that the government will have to spend $5 trillion over the next seven decades to pay off the bonds that form the Social Security trust fund, which Congress has tapped to finance other programs, Abdnor says.

``That's going to have to be paid by income taxes so that the firewall between income taxes and Social Security is broken,'' Abdnor said. ``We're just waiting to flip the switch.''

While others joust over such issues in public, Ball, as he has in the past, is likely to do most of his work behind the scenes, author Berkowitz says. ``This administration will come up with its own plan, and then the question is, Who will the Democrats listen to?'' Berkowitz says. ``He'll be the point man.''

Even at 90, Ball says, he is up to the task. ``I keep thinking of retiring,'' he says. ``And then somebody thinks of a gimmick I have to defend the program against.''

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net.

Last Updated: December 14, 2004 00:10 EST