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US Social Security Overhaul May Be Tough Next 2 Years January 18, 2007

Posted by notapundit in Politics, US News.
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WASHINGTON (Dow Jones)–Overhauling Social Security may prove elusive in the next two years, as Democrats and Republicans remain at odds over personal retirement accounts and as pre-2008 election jockeying complicates the political landscape, two influential business groups said Thursday.

“I don’t see the two years prior to the presidential election being a period of time where much can be accomplished,” said Bob Shepler, director of corporate finance and tax at the National Association of Manufacturers.

“There may be hearings this year, and there will probably be talk in both chambers [of Congress],” Shepler added. But, “I don’t see this environment as one where significant reform can take place,” he added.

Aliya Wong, director of pension policy for the U.S. Chamber of Commerce, largely agreed, saying “it would be very difficult to move forward” with any reform efforts in the near term.

In the aftermath of the Democratic takeover of Congress, the White House and Democratic leaders both made tentative overtures towards compromise: The Bush administration said it would consider all proposals for fixing the retirement program, and Capitol Hill Democrats indicated they were likewise open to discussions.

Despite the early conciliatory tone in Washington, Shepler said the two parties remain deeply divided over the issue of personal retirement accounts – long championed by the Bush administration. At the same time, Bush is unlikely to entertain any plan to raise revenues with changes in the tax code.

“I don’t think at the end of the day the President will be willing to raise taxes,” Shepler said. “At the same time, I don’t think the Democrats are going to be willing to compromise towards individual accounts.”

Members of both political parties, along with Federal Reserve Chairman Ben Bernanke, agree Social Security’s financial future is troubling, particularly with the looming retirement of the Baby Boom generation. While Social Security is currently running a surplus of some $85 billion in cash, by 2018 the program is expected to start cashing in its trust funds to pay benefits.

“If early and meaningful action is not taken” in reforming programs like Social Security and Medicare, then “the U.S. economy could be seriously weakened, with future generations bearing much of the cost,” Bernanke said Thursday in congressional testimony.

Previous efforts by the Bush administration to kick-start an overhaul were stymied when lawmakers balked at plans to set up personal retirement accounts, which would divert funds from Social Security’s payroll taxes and create individual retirement accounts.

Democrats remain adamantly opposed to personal accounts, which they say are tantamount to privatizing Social Security.

Overhaul Could Crop Up In State Of The Union Speech

President George W. Bush may address the broad topic of Social Security overhaul during his State of the Union address on Tuesday, but the specifics of what the president could say remain unclear.

The president may point to a specific proposal, such as Sen. Jeff Sessions’, R-Ala., plan to set up a personal savings account – with a $1,000 endowment from the government – for every American at birth, Shepler said.

The accounts would receive automatic pretax contributions from worker’s paychecks, and employers would have to match those contributions.

“That type of a discussion may fuel the fire,” Shepler said.

But Wong said Bush would likely only address Social Security generally, while steering clear of any specifics.

“I would think he will mention it, but it will be big picture and vague…it will be more along the lines of ‘we need to look at Social Security, we need to fix the problem,'” Wong said.

Newly-Minted President Needed For Overhaul?

With both parties keeping an eye on the 2008 presidential elections, Shepler maintains it will be difficult to make political progress in the intervening two years.

“The issue causes people to turn against the other party in the polls – it’s really been a political football, so to speak,” Shepler said.

Moreover, Bush could wield his veto authority to block Democratic legislative efforts.

Instead, Shepler said “Social Security reform has to be one of those issues that’s dealt with in the first year of a new presidential term – the earnest discussions have to begin at that point,” he said.

Wong likewise sees a distant horizon for substantive progress on Social Security, with the next two years serving as an opportunity to “throw out ideas.”

Thus, the time to start looking seriously at overhaul proposals would be three or four years from now, Wong said.

“I think people genuinely want to address the problem, but I think they also have genuinely different ideas of what the problems are and how they need to be fixed,” Wong said.

By Benton Ives-Halperin, Dow Jones Newswires

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