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House Ways and Means Committee Chairman Bill Thomas, R-Calif., may well be the prickliest and most explosive lawmaker on Capitol Hill, but the White House would be well advised to listen to him on Social Security and tax reform. What Thomas may lack in social graces, he makes up for in his understanding of these issues and their politics.

In many ways, President Bush's fate on his two prime domestic objectives, overhauling Social Security and the federal tax code, is largely in his own hands. If the White House insists on siphoning off a share of Social Security taxes to fund personal accounts and recalculating cost-of-living benefits in a way that effectively reduces retirees' benefits, its proposal will be either a dead letter on Capitol Hill or one of the bigger disasters ever to hit the Republican Party. Anyone who thinks that the public would not see "recalculating benefits" as cutting benefits is smoking something illegal or is awfully naive.

On the other hand, if the White House remains flexible, keeps its ears open, finds a proposal that is both good policy and good politics, and adopts the plan as its own (remember how the White House initially fought creation of a Department of Homeland Security?), Social Security reform can turn into a Bush victory. Plenty of good ideas are being offered by people who understand the integration of policy and politics.

Whether Social Security is in a state of crisis or just has a serious problem that needs to be fixed eventually is a question of semantics that is ultimately unimportant. As Thomas noted last Sunday on Meet the Press, the more pressing problem is Medicare's financing. It would be wrong, he warned, to focus the discussion on Social Security at the expense of Medicare. Thomas urges everyone to think outside the box and to look at other future revenue streams -- not just at a very regressive payroll tax -- to finance these expensive programs.

Arguably, one way to approach Social Security's problem is to break it down and say that any solution

should have two objectives. First, stabilize the system financially to ensure its future solvency. Efforts made today would be considerably less painful than if the repairs are delayed. The second objective should

be to dramatically increase the personal savings rate in this country, so that future retirees are less dependent upon Social Security and can have a more comfortable retirement. While that is obviously the intention of the president and his backers, their plan to shift to personal accounts using some of Social Security's payroll taxes isn't the only way to achieve that goal.

Take these objectives individually: Without resorting to Thomas's proposal to enact a broad-based sales or consumption tax (which might be needed for Medicare instead), simply pushing back the full retirement age another year or so would help immensely. But manual laborers might need a special exception.

Also, as Sen. Lindsey Graham, R-S.C., has proposed, the limit on earnings that can be taxed for Social Security could be raised from its current level of about $90,000 to $140,000 or more. Although many Republicans hate this option, the trade-off for them could be something that they would really like, such as dramatically liberalized and simplified individual retirement accounts.

If every American, regardless of age or income level, were allowed to salt away up to, say, $10,000 in pretax income every year, the savings rate would very likely increase significantly. Dollar-for-dollar matches for low-income workers would increase participation rates, no doubt. When simplified IRAs were unveiled in the early 1980s, long lines snaked outside firms selling IRAs on April 15, the last day to buy an IRA that could be deducted from the previous year's earnings for income-tax purposes.

These proposals would stabilize Social Security, lessen dependency on Social Security benefits, and increase the savings of millions of families, particularly if the government subsidized IRAs for the poor. The objective that conservatives seek -- allowing people to have greater financial control over their own retirement -- could be achieved with liberalized IRAs.

On Social Security, the ball is in the White House's court. And if the White House misplays it, the president's party risks losing its majorities in the House and Senate.

COMMENTS

• "...impact of a large stream of funds into the stock market." I agree. Considering that IF SSN is "privatized" and IF that money goes into the stock market, it will be the largest fund in the stock market. Consider the politics. If the fund has an "I" fund component (such as the International Fund in the FERS TSP) and it is making more money than the other funds (US based) ... will the politicians restrict that fund to encourage US based investment? Will we end up with "Green" funds? "Minority" funds? I have no problem with any of these being offered but will the whims of the day hold sway with politicians determining what we should invest our money in? I've seen too much of this already and such tinkering with the largest retirement/stock fund in the world (as would result from the privatization of the SSN) would be our downfall. Think that couldn't happen? Check out the "Life-Cycle" fund proposal for the FERS TSP. Under it, they propose to change our contributions without notifying us, without a guaranteed return, and without regard to our wishes; all based on their suppositions of our "best interest". Tip Posted February 7, 2005 12:47 PM
• Curious to me that FDR, the patron saint of the Democratic party regarding Social Security, had this to say to Congress on Jan 17, 1935: "In the important field of security for our old people, it seems necessary to adopt three principles: First, noncontributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps 30 years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities that in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans." We had the first two eventually, but, as a Ponzi scheme, it was set up to require an adequate number of payers to support the payees. It ain't there anymore. Maybe it will be again, but likely not for an extended length of time. FDR's third point? Doesn't sound all that different to me than the most talked about suggested way to change Social Security. Skeptical Posted February 4, 2005 7:53 AM
• This is where everyone is mistaken. Patricia, the Social Security fund wasn't set up to be a retirement account, it is in fact set up to be a payroll tax. I get taxed today to pay for my parents benefits and my kids get taxed to pay for my benefits 30 years from today. It has been a real disservice to the debate to keep comparing Social Security to a 401k. It and disability retirement payments are safety nets established so that we don't have elderly poor and disabled poor like we had in the 1930 Depression era. If all the money is pulled out by current workers of the me, me ,me generation we can go back to having our elderly living on cat food and the disabled sleeping on the street. At least we have some safety net for these folks. If you think of it as a payroll tax and what is is supposed to be used for you will be as outraged as I am that it is being touched at all. My suggestion for the President is to fix the health care system and medicare and leave Social Security alone. HR Specialist GovExec.com reader Posted February 3, 2005 4:34 PM