Feb. 6 (Bloomberg) -- Vice President Dick Cheney said the U.S. government can borrow $754 billion in the next decade to help finance private accounts for Social Security without hurting the U.S. economy with higher budget deficits.

Cheney, appearing on Fox News Sunday, defended President George W. Bush's plan to borrow $754 billion to enable young workers to divert a portion of their Social Security payroll tax to private investment accounts.

Social Security benefits for retirees and disabled Americans are financed by a 12.4 percent payroll tax on workers' wages up to $90,000 a year. Bush's plan would let workers divert a percentage of that tax to private accounts that are intended to earn a higher rate of return. The extra borrowing would be needed to finance continued payments of retirees' Social Security benefits.

``We think that's a manageable amount,'' the vice president said. He said the government will have to borrow ``trillions more after that'' as the percentage of Social Security payroll taxes that workers can set aside for the personal accounts is increased.

Phasing in when people can begin setting aside money for the private accounts, and how much, will help minimize the impact of the additional borrowing, he said.

``It is important to manage the fiscal impact of these transitions in an intelligent fashion, and we're well aware of that,'' he said. ``That's one of the reasons you do phase it in.''

`Right Estimate'

Cheney said the Bush administration has provided the ``right estimate going out over the next 10 years.''

In meantime, the Bush administration will ask Congress to approve ``the tightest budget that has been submitted'' since the president took office, Cheney said. Bush has promised to cut the annual budget deficit in half in five years.

The administration plans to hold the increase in discretionary spending to less than inflation, cutting or eliminating 150 programs while allowing increases for defense and homeland security he said.

Asked about Bush's plans to cut billions of dollars for farm subsidies, children under Medicare and for food-stamp recipients, Cheney said: ``It's not something we've done with a meat axe, nor are we suddenly turning our backs on the most needy people in our society,'' he said.

Last week, Senate Democratic Leader Harry Reid said not a single Democratic senator would support Bush's Social Security plan. Arizona Republican Senator John McCain, appearing on ABC's ``This Week,'' said ``there's many members of Congress sitting on the fence'' over the issue of Social Security.

Political Opposition

McCain, who said he supports the idea ``in principle,'' said, ``there's a number of members of the Senate and House who are not happy about President Bush coming to a neighborhood near them.''

Democrats argue that allowing younger workers to set up private accounts won't solve the long-term fiscal problems of Social Security.

The projected shortfall of payroll-tax revenue to pay Social Security benefits can be financed by rolling back just a third of Bush's $1.85 trillion tax cuts set to expire in 2008, Democratic Senator Edward Kennedy said on NBC's ``Meet the Press.''

``The president's program to make his tax cuts permanent is three times what's necessary to fix Social Security,'' the Massachusetts lawmaker said.

Nebraska Senator Ben Nelson, a Democrat who often votes with Republicans, said he would be concerned if the proposal resulted in lower benefits for Social Security recipients and hurt efforts to reduce the deficit. ``You want to make sure you are not cutting benefits and you are not adding to the growing deficit,'' said on Fox News.

To contact the reporter on this story: James Rowley at jarowley@bloomberg.net

Last Updated: February 6, 2005 14:16 EST