The next 4 years: a shift to "ownership society"
Los Angeles Times
WASHINGTON — President Bush is poised to pursue an aggressive "ownership society" agenda of Social Security privatization, new tax breaks for savings and investment and additional incentives for homeownership as cornerstones of his second-term economic initiatives.
Bush hinted as much in his victory speech Wednesday, promising: "We will reform our outmoded tax code. We will strengthen Social Security for the next generation."
His conservative supporters, meanwhile, rhapsodized about prospects for new tax and budget legislation that they asserted could remake the nation and usher in a generation of GOP dominance.
"The aim of the ownership society is to create a country of stakeholders in the American economy," said Stephen Moore, president of the Club for Growth, a conservative activist group. "We will all become capitalist investors."
Bush is expected to start rolling out his proposals early next year, with his State of the Union address and next budget proposal.
Veterans of Washington's tax and budget wars expressed doubts about how far the newly re-elected president can press his case in the face of widening budget deficits and looming additional costs for, among other things, the war in Iraq. But even they acknowledged that Bush is all but certain to call for substantial changes in Social Security, as well as for making the tax cuts of his first term permanent and adding a variety of new breaks.
"New legislation has become almost mandatory in Washington," said C. Eugene Steuerle, a senior Treasury official during the Reagan administration and authority on the federal tax system. "The president is no longer just the nation's administrator in chief; he's the policy-maker in chief."
Bush has talked about recasting Social Security to permit workers to divert a portion of their payroll taxes into private retirement accounts since first appearing in his own right on the national stage in the late 1990s. But he has shied away from advancing a specific proposal in part because of the daunting financial issues involved in changing the giant retirement security system. Also, almost any privatization plan is likely to produce howls of protest among Democrats.
More generally, the president has engaged in an intricate political minuet with the ownership-society agenda pressed upon him by conservative supporters.
Two years ago, he included key elements of the agenda in his budget when he proposed streamlining the hodge-podge of tax incentives for savings into two tax-break-heavy arrangements — a retirement savings account, or RSA, and a lifetime savings account, or LSA.
But then he let the proposals die on Capitol Hill in favor of cutting the tax on corporate dividends.
During the past year, he has repeatedly mentioned the ownership society in campaign speeches, but always shorn of potentially controversial details.
"In an ownership society," he told Republicans at their national convention in September, "more people will own their health plans, and have the confidence of owning a piece of their retirement."
Lifetime savings accounts would allow Americans to accumulate tax-free funds for almost any purpose, including job training, college tuition, home purchases and retirement. Retirement savings accounts would consolidate and expand several existing types of retirement accounts.
Bush is also expected to push for wider use of health savings accounts, tax-advantaged savings vehicles created by last year's new Medicare law. They encourage people to save for their own routine health costs, although they include insurance covering "catastrophic" health expenses.
On Social Security, the president endorsed the idea of "allowing younger workers to save some of their taxes in a personal account — a nest egg you can call your own and the government can never take away." But he gave no indication of how he would make such a plan work.
All of this is about to change, according to conservative activists close to the administration.
"Bush will want to do one big thing, Social Security reform. That's the big bang," predicted Grover Norquist, president of the conservative Americans for Tax Reform.
Bush chief political strategist Karl Rove "has promised that Social Security will be high on the president's second-term agenda," added William Niskanen, chairman of the libertarian Cato Institute.
Critics charge that creating private accounts would undermine support for Social Security by confusing what is intended as insurance against destitution in old age with an investment on which people can win or lose. They say privatization proposals mask the fact that Americans, in agreeing to the accounts, would be taking on risks now borne by the government.
In addition, the critics say that while one of privatization proponents' chief arguments for overhauling Social Security is that the system is slated to run short of money in the next generation, the solution of diverting money into private accounts would make its finances shakier.
"Converting Social Security's basic benefits into private accounts shifts risks onto individuals who are in no position to bear them," said Robert Reischauer, president of the Urban Institute, a Washington think tank, and former head of the nonpartisan Congressional Budget Office.
Analysts estimate that funding the new accounts for young workers while simultaneously paying benefits for those now eligible to receive Social Security could require the government to borrow trillions of dollars.
The government is already expected to run $2.3 trillion in deficits over the next decade, according to the CBO.
Proponents counter that the borrowing would only be temporary and would eventually result in the government having fewer payments to make while individuals would get to keep more of their own money.
In addition to changes in Social Security, Bush is likely to press to make permanent the tax cuts that he won during his first term.
As things now stand, the dividend and capital-gains tax cuts are scheduled to expire in 2009 and the bulk of the individual cuts in 2011.
Los Angeles Times staff writer Doyle McManus contributed to this report.
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