Social Security: A Trial Balloon That's Dropping Fast

Bush's hints about higher payroll taxes spook supporters and don't sway Dems

When President George W. Bush hinted on Feb. 15 that he might be willing to raise payroll taxes on upper-income workers as the price of a broader deal to overhaul Social Security, some reform backers cheered. They reckoned that adding new revenues to the shaky system not only made financial sense, but it would help win over a handful of swing Senate Democrats and balky Republican moderates. Until now those lawmakers have opposed the President's plan for private investment accounts, fearing that the cost would bust the budget and require deep benefit cuts. A tax hike could ease both concerns. Says Maya C. MacGuineas, president of the Committee for a Responsible Federal Budget: "It is a huge act of good faith for the President. This needed to be on the table."

Problem is, Bush's trial balloon has not yet helped much. Moderate Demo-crats show no sign of softening their opposition to Bush's accounts. Business lobbyists are reacting coolly to the prospect of a bigger tax bite. Senate GOP moderates are unwilling to embrace it, though the idea was floated by one of their own, Senator Lindsey Graham (R-S.C.) And Hill conservatives are responding with rare criticism. "I don't think it moves the ball at all," says Stephen Moore, president of Free Enterprise Fund, a Washington advocacy group that favors personal accounts.


Still, social security reform is far from dead. Time and again Bush has proven his skill at muscling through his agenda, be it tax cuts or education reform. But given the complexity and passions surrounding the Social Security debate, even some of his strongest allies wonder if he can sell his plan in 2005. Every hint of either benefit cuts or tax hikes generates furious opposition. And polls show the President's cross-country tour has not boosted support for private accounts a bit.

Bush's willingness to consider raising payroll taxes is clearly aimed at winning wider support. Graham and others suggest making wages above $90,000 subject to Social Security tax. Today workers pay tax on their first $90,000 in annual salary and nothing on wages beyond that. A Feb. 4-6 CNN/USA Today/Gallup poll shows that such a tax hike may be the most popular solution to the system's financing woes. More than two-thirds of those surveyed said higher-income workers should pay tax on all their wages. Seniors' lobby AARP also would back such a hike as part of a global fix. And some economists believe it should be part of any long-term solution.

But House Republicans are not buying. Both Speaker Dennis Hastert (R-Ill.) and Majority Leader Tom DeLay (R-Tex.) flatly reject the idea. And though the White House asked GOP lawmakers to hold town meetings on Social Security during the week of Feb. 21, only a third of the party's House members were expected to do so. "The President still needs to convince people there's a problem," says one House GOP staffer.

As part of that effort, Bush is enlisting business. Such groups as the National Association of Manufacturers and the U.S. Chamber of Commerce may be key to the fate of Bush's private accounts since they aim to contribute up to $100 million for both a massive grassroots public relations blitz and an inside-the-Beltway lobbying effort. But many businesses are far from enthusiastic about the effort. Some say they're participating only because they've been pressed by the White House. "They're making a list," says one lobbyist. "They're checking it twice."

Now these execs are starting to worry about getting socked with a payroll tax increase. And business is quietly urging the White House to scrap the idea. Still, Corporate America will wait to see what a Social Security deal looks like before making any commitments. "We'll have to look at that when it comes forward," says John J. Castellani, president of the Business Roundtable, which leads one grassroots initiative.

Senate Democrats, meanwhile, continue to oppose any accounts that reduce basic benefits. And no Democrat will back specific benefit cuts or tax hikes until Bush unveils his own plans. But moderates are leaving the door open to a deal. "The fact that he did not object to raising the cap is very important," says one Senate Democratic aide.

That still leaves Bush with a Gordian knot that is tightening around his plan for Social Security. He can't win without Senate Democrats -- but he can't get them on board without upper-income tax hikes and without dropping his version of private accounts. But Bush also needs the backing of House Republicans -- and he can't get them if he abandons his accounts and includes tax hikes.

That painful calculus may explain why the President took time out from his Social Security blitz in late February to travel to Europe. Patching up the trans-Atlantic alliance could prove far easier than fixing Social Security.

By Howard Gleckman in Washington

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