Social Security tax increase ruled out

By Knight Ridder Newspapers and The Associated Press

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WASHINGTON — President Bush yesterday ruled out any increase in payroll taxes to help fund his plan to partially privatize Social Security and said "the time is now" to overhaul the federal retirement system.

Anti-tax activists praised the president's no-new-taxes pledge, but critics said Bush has set America up for a big increase in the already-large government debt. Bush and his advisers have said they are willing to accept short-term debt for the long-term gains that they argue could come from letting workers invest some of their payroll taxes in the stock market and other investment vehicles.

The transition to a partially privatized system is expected to cost between $1 trillion and $2 trillion over 10 years. If nothing changes with Social Security, projections indicate payroll taxes will fall $11 trillion short of promised retirement benefits over 75 years. Bush stressed that the $11 trillion in "unfunded liabilities" is why the system must change, but he ruled out a tax increase as part of the solution.

"We will not raise payroll taxes to solve this problem," Bush said after meeting in the Oval Office with trustees who oversee the Social Security system.

Tom Giovanetti, president of the conservative Institute for Policy Innovation, said Bush's no-tax-increase pledge "established a critical boundary" in the emerging debate over Social Security and killed off a "dangerous idea."

Some GOP proposals have promoted payroll-tax increases as a way to confront costs of changing Social Security. Some Republicans also want to consider increasing or removing the limit on income subject to the 12.4 percent payroll tax split between workers and employers.

The maximum level of earnings taxed is $87,900 now; it is scheduled to increase to $90,000 next year.

Sen. Lindsey Graham, R-S.C., has said he would consider lifting the cap if his plan drew bipartisan support, and a spokesman said yesterday his position had not changed. Sen. Charles Grassley, R-Iowa, chairman of the tax-writing Senate Finance Committee, also has said tax increases should be considered.

At a later briefing, White House spokesman Scott McClellan declined to rule out increasing the amount of income subject to payroll taxes.

"We have not endorsed a specific plan at this point," McClellan said. "What we want to do is get with members of Congress and work to solve this problem. We want to hear their ideas."
 
Democrats were wary. "We need to see the details of the president's plan," said Senate Minority Leader Harry Reid of Nevada. "And we need to be careful not to approve a plan that requires deep benefit cuts or massive increases in debt."

White House budget director Joshua Bolten said the cost of implementing Bush's plans would not undercut the president's goal of cutting the deficit in half over five years. Yet, Bolten said, such costs "may well" add to short-term annual deficits.

"I don't want to prejudge how they might be accounted for," he said. "If we maintain the policies the president has put out, I believe our path out over the next five to 10 years looks sufficiently strong that we could absorb transition financing" costs without swelling deficits that are too large compared to the economy.