Financial Daily from THE HINDU group of publications
Monday, Dec 13, 2004
Industry & Economy
Bush starts focusing on social security system
Washington , Dec. 12
WITH the baby boom generation looking at retirement, the US President, Mr George W. Bush, pushed his domestic agenda for the second term by saying that the nation must start addressing the impending bankruptcy of the social security system.
At the same time, Mr Bush insisted that the way to go about this was not by raising payroll taxes; rather to look at private retirement accounts for younger workers.
The reform of social security and revamping the tax codes are the main themes of the second Bush administration as a part of the broad domestic agenda; and one of the major issues of the last November election has been the structural changes in the social security system with the big question being the role of the Government as it addresses the critical problems.
"For the sake of our younger workers, for the sake of younger Americans, we must be willing to address this problem," Mr Bush remarked after meeting with the trustees of social security at the Oval Office.
"I think it's vital to consider allowing younger workers, on a voluntary basis, set aside some of their own payroll tax in personal accounts as part of a comprehensive solution to dealing with the social security issue," he added.
Broadly speaking, the President's proposal would have younger workers invest between two per cent and four per cent of their payroll taxes into private accounts that will be invested in safe stock market funds. It is estimated that the cost of having workers move away from the government system is in the neighbourhood of $2 trillion and Mr Bush is prepared to have the federal government cough up this initial expense by borrowing. "We will not raise payroll taxes to solve this problem," the President maintained.
The White House argument is that it is better for social security to partially head the private route and for the federal government to come up with the initial expenditure rather than continue with the unfunded liabilities of the programme now pegged at $11 trillions.
The trustees of social security have made the point in their report that the system, as it currently stands, will start running a deficit in 2014 and be exhausted in 2043. Further an argument has been that to bring about a balance in the system over the next 75 years would see an increase of payroll tax by 15 per cent or a 13 per cent cut in benefits.
Congressional Democrats who have said they are willing to listen and work with the President on major issues are not about to endorse what Mr Bush has said on social security reform. This is one of the major domestic programmes that will not go down without a major debate and political fight for many lawmakers are apprehensive of handing over social security however partial it may be to private accounts.
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