Bush Issues Call to Action on Social Security Makeover

WASHINGTON —  President Bush used his State of the Union address Wednesday to launch a determined push for sweeping changes in the nation’s Social Security system, including new individual investment accounts for younger workers and potentially deep but unspecified cuts in benefits for future retirees.

In his first full-scale exposition of the issue he has made the top domestic priority of his second term, Bush argued that Social Security, the 70-year-old pension system that long had been the federal government’s most popular program, was in declining financial health and needed to be changed.

“We must pass reforms that solve the financial problems of Social Security once and for all,” the president said in his 53-minute speech.

But Bush did not spell out how he would avert the financial shortfall that the government expected to arrive in 2042. Instead, he asked Congress to consider a list of politically difficult changes, including cutting benefits for wealthy retirees, increasing the retirement age and changing the formula by which cost-of-living increases in Social Security were calculated.

“All of these ideas are on the table,” Bush said. He noted that many of those options had been raised by leading Democrats in the past -- although he avoided endorsing any of them himself.

The speech, Bush’s first State of the Union address of his second term, marked a significant political moment: a Republican president reelected with a majority of the popular vote supported by solid GOP majorities in both houses of Congress for the first time since President McKinley’s second term began in 1901.

Bush proposed an ambitious and wide-ranging agenda -- so wide-ranging that many of his major priorities, such as changes in federal tax law, the civil lawsuit system and immigration policy, rated only two sentences. Dozens of lesser goals were barely mentioned.

The president noted that he was speaking only three days after millions of Iraqis had voted in elections for a national legislature, an event he cited as evidence that his policy of promoting democracy in the Middle East was making progress. He rejected suggestions that the United States should set a timetable for withdrawing its 150,000 troops from Iraq, saying “that would embolden the terrorists and make them believe they can wait us out.”

But the largest and most significant portion of the speech was devoted to proposed changes in Social Security, the issue Bush repeatedly has named as the top domestic priority of his second term.

His call for action came after months of growing debate and increasing public skepticism about a proposal the president had made in his election campaign but had never fleshed out with details. Democrats and other opponents -- including the powerful senior citizens’ organization AARP -- have been campaigning in the last few months against individual accounts, warning that they would divert funds away from the traditional guaranteed pension. The result has been growing public opposition to Bush’s proposal -- and increasing unease among Republicans in Congress about tackling an issue that was once branded the third rail of American politics.

The scene on the floor of the House of Representatives reflected the deep partisan division over the issue. Republican supporters of Bush’s plan jumped repeatedly to their feet and cheered. Democrats sat and scowled; twice, some protested “No!” when the president claimed that Social Security could go bankrupt, an assertion many experts consider exaggerated.

And several moderate Republicans who have been on the fence and worried about the political risks Bush was asking them to assume, including Sen. Olympia J. Snowe (R-Maine), chose not to clap when Bush talked about his Social Security plans.

“Congress is not near a consensus on this issue,” Rep. Mark Steven Kirk (R-Ill.) said, noting that many Republicans still were uncommitted to backing Bush’s plan. “But it was an effective opening of the debate.”

In the opposition party’s official response, Senate Minority Leader Harry Reid (D-Nev.) denounced Bush’s proposals as “Social Security roulette” and said that the president would “replace the guaranteed benefit that Americans have earned with a guaranteed benefit cut of 40% or more.” White House aides, noting that Bush has proposed no specific benefit cut, say that charge is unfair.

Republican pollster Bill McInturff, who has advised GOP congressional leaders on the issue, acknowledged that Bush faced considerable political resistance to changes in Social Security, but argued that public opinion was still “fluid.”

“We’re just starting this debate,” he said. “An American president starts a debate by setting the terms of the debate, not by outlining specific legislation.... Some people say it’s already done; I think they’re wrong.”

White House officials say they are confident that congressional skepticism will dissipate once the president persuades a majority of the public that action is needed to extend the life of the retirement program, a process Bush was scheduled to begin today by taking his Social Security message on the road.

Only after he builds public support will the president put forth further details of his proposed solutions, aides said.

In recent interviews, Bush has likened the challenge to one he faced in the first year of his first term, when he rammed major tax cuts through Congress despite considerable initial resistance.

Though Bush did not endorse any specific solution to Social Security’s fiscal problems, he did rule out two options. He said he would reject any increase in the payroll taxes that fund the pension program. And he promised that no benefits would be cut for workers 55 and older.

The president’s statement that eventual benefit cuts are “on the table,” even though he did not endorse any specific options, was his most explicit acknowledgment yet that the changes he sought would come at a cost to beneficiaries down the road. The trustees of the Social Security system have estimated that restoring “financial adequacy” would cost the equivalent of an immediate, across-the-board benefit cut of about 13%; if the cuts were delayed or limited to only some beneficiaries, they might have to be deeper.

The underlying political calculation, proponents say, is that workers younger than 55 already are skeptical that they will receive significant benefits from Social Security and so are more enthusiastic about trying the alternative approach of individual accounts.

Bush added new details to his proposal for individual accounts, under which workers could direct some of the taxes now paid for Social Security to mutual funds investing in stocks and bonds.

In a significant shift in his rationale for the accounts, Bush dropped his claim that they would help solve Social Security’s fiscal problems -- a link he sometimes made during last year’s presidential campaign. Instead, he said the individual accounts were desirable because they would be “a better deal,” providing workers what he said would be a higher rate of return and “greater security in retirement.”

A Bush aide, briefing reporters on the condition of anonymity, was more explicit, saying that the individual accounts would do nothing to solve the system’s long-term financial problems.

That candid analysis, although widely shared by economists, distressed some Republicans.

“Oh, my God,” one GOP political strategist said when he learned of the shift in rhetoric. “The White House has made a lot of Republicans walk the plank on this. Now it sounds as if they are sawing off the board.”

But Sen. Lindsey Graham (R-S.C.), a leading Senate proponent of restructuring Social Security, said the White House’s candor was a good thing.

“As we debate the problem, we also need to be realistic about defining the solutions,” he said. “The truth is, personal accounts will not even come close to making Social Security solvent.”

In calling for action on Social Security, Bush refrained from describing the situation as a “crisis,” a word he often used throughout the 2004 campaign. Instead, the president sought to sway public opinion with a detailed description of the program’s fiscal problems.

“The system ... is headed toward bankruptcy,” he warned.

The White House, in a news release, explained that by “bankrupt,” Bush meant that by 2042, the system would have exhausted its reserves and would be unable to pay all of its obligations. Actuaries have estimated that at that point, annual payroll taxes would still support about 73% of promised benefits. Democrats and other opponents of Bush’s plan have objected to the term “bankrupt,” saying it implies wrongly that Social Security would be flat broke.

The president did not address a problem many members of Congress and financial experts consider the most difficult part of his Social Security proposal: how to fund the traditional pension system while diverting payroll taxes away from it for individual accounts.

On other domestic issues, the president announced that he would submit a budget Monday for fiscal year 2006 that held the growth of discretionary spending below the rate of inflation. He said that budget “substantially reduces or eliminates” more than 150 government programs.

He asked Congress to make his tax cuts permanent; the reduced tax rates passed in 2001 are scheduled to expire by 2011. He called on Congress to extend his education program, including nationally mandated testing, to high schools as well as elementary schools.

He asked for a sweeping reform of immigration laws to allow “guest workers” to fill jobs Americans would not take and thus reduce illegal immigration. And he called on the Senate to give all of his judicial nominees “an up-or-down vote.”

He briskly asked Congress to pass a long list of proposals he had made over the last year, including new restrictions on lawsuits, major changes in the tax system, a long-sidelined energy bill and tax credits to help low-income workers buy health insurance. But none of these rated more than a sentence or two, suggesting that they had dropped to a lower rung on Bush’s priority list.

The president touched on familiar themes in his social agenda: faith-based initiatives, his support for a constitutional amendment against gay marriage and curbs on the use of human embryos in medical experimentation. But these too received only brief mention.

In two modest surprises, the president proposed an initiative to help community organizations keep young people out of violent youth gangs and said the effort would be led by his wife, Laura; and a program to teach defense lawyers in death penalty cases how to defend their clients more effectively. “People on trial for their lives must have competent lawyers by their side,” said Bush.

On foreign policy issues, Bush repeated the pledge to promote democracy around the world -- the central theme of his inaugural address -- but he softened the message in several ways.

“The United States has no right, no desire and no intention to impose our form of government on anyone else,” he said.

He gently urged the United States’ two principal allies in the Arab world, Saudi Arabia and Egypt, to launch political reforms, calling on authoritarian Egypt to “show the way toward democracy” and asking the Saudi monarchy to consider “expanding the role of its people in determining their future.”

But he said U.S. forces would stay in Iraq until it was “a country that is democratic [and] representative of all its people, at peace with its neighbors and able to defend itself.”

Reviving a theme he used to justify the U.S. invasion of Iraq in 2003, the president said the insurgents fighting there were terrorists who would attack the United States directly if American forces did not pin them down abroad. “Our men and women in uniform are fighting terrorists in Iraq so we do not have to face them here at home,” he said.

Bush said the election of Mahmoud Abbas as president of the Palestinian Authority had created a new opportunity for peacemaking between Israel and the Palestinians, and he asked Congress for $350 million in new aid to support Palestinian political and economic reforms.

In a flourish that has become something of a tradition, Bush ended his message by introducing two guests who sat in the House gallery with Laura Bush.

One was Safia Taleb al Suhail, the leader of an Iraqi women’s organization who, when she was identified by Bush, held up a forefinger stained with purple ink to show that she had voted in her country’s election Sunday. In a coordinated gesture, House Republicans also held up ink-stained forefingers in her direction, sometimes in the form of a “V.”

The other guest was Janet Norwood of Pflugerville, Texas, the mother of a 25-year-old Marine sergeant who was killed in the U.S. assault on the insurgent-held town of Fallouja in November. After her son’s death, Norwood wrote a letter to the president saying she still supported his policies in Iraq.

As a long -- and, in this case, bipartisan -- ovation swelled across the floor, Norwood and her husband, William, stood and hugged the Iraqi human rights activist. Several members of Congress wiped their eyes as they retook their seats; the president appeared to brush a finger across his eyes as well.

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(BEGIN TEXT OF INFOBOX)

Highlights

President Bush spoke of the “spirit of liberty” and the need to “build a better world” in a speech both broad and personal.

Social Security

The current system is “headed toward bankruptcy.” Americans under 55 should have the option of personal investment accounts.

Iraq

The nation “is a vital front” in the war on terrorism and struggle for democracy. There is no timetable for a withdrawal of U.S. troops.

Iran

The U.S. is working with European allies to press “the world’s primary state sponsor” of terrorism to abandon its nuclear ambitions.

Economy

Discipline is needed to ensure prosperity. The proposed budget will hold domestic discretionary spending below inflation.

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Times staff writers Mary Curtius, Janet Hook and Maura Reynolds contributed to this report.