Bush rules out tax increase to overhaul Social Security

WASHINGTON -- President Bush on Thursday ruled out raising taxes to finance the centerpiece of his second-term domestic agenda: a Social Security overhaul to help the system survive an impending wave of retiring baby boomers.

Three years after his Social Security commission issued recommendations on how to repair the system, Bush remained noncommittal Thursday on how he would pay for the estimated $2 trillion cost of revamping Social Security. But vast new borrowing seemed increasingly likely.

"I will not prejudge any solution," Bush said in the Oval Office after meeting with the Social Security trustees who submit an annual report on the state of the program's funding. But he went on to say, "We will not raise payroll taxes to solve this problem."

Bush reiterated a 2000 campaign pledge to let younger workers invest some of their payroll taxes in the stock market. Bush's commission urged that younger Americans be allowed to place 1 percent to 4 percent of their incomes into a private account to be invested for retirement. Those who choose to have that percentage diverted would probably see a reduction in their regular Social Security check, administration officials said.

White House aides said Bush also remained committed to making no changes in benefits for those at or near retirement.

He sidestepped a reporter's query about whether the nation can afford new, large-scale debt at a time when deficits have reached record levels. Before engaging in such questions, the public and Congress must grasp the problem, Bush said.

Polls show there is already high public awareness of the problem. Bush campaigned on the issue, and various governmental blue-ribbon panels, summits and commissions warned of the urgency of the problem in 1981, 1983, 1992, 1996, 1998 and 2001.

Nevertheless, Bush said, "I think it's very important for the first step to be a common understanding of the size of the problem, and then for members of both parties, in both bodies, to come together, to come and listen to the options available."

White House budget director Joshua Bolten said the cost of implementing Bush's plans would not undercut Bush's goal of cutting the deficit in half over the next five years.

Yet, he said, such costs may add to short-term annual deficits. "I don't want to prejudge how they might be accounted for," Bolten 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, he said.

By taking payroll tax increases off the table, Bush dealt a blow to some GOP proposals to confront the costs of changing Social Security. They want to consider raising 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 will rise 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. Sen. Charles Grassley, R-Iowa, chairman of the tax-writing Senate Finance Committee, also has said tax increases should be considered.

White House spokesman Scott McClellan did not answer directly when asked nine times whether Bush would be open to raising the limit on income subject to the Social Security payroll tax.

If nothing changes, trustees project a shortfall of about $11 trillion in what the government needs to pay promised benefits to the coming waves of retiring baby boomers and beyond, into what trustees called "the infinite future." The system will start paying out more in benefits than it collects in taxes in 2018.

"The fact of the matter is that if we don't solve this problem, payroll taxes are going up big-time. We need to solve this problem so that doesn't happen," McClellan said.

At a news conference shortly after Bush spoke, House Democratic leader Nancy Pelosi declined to rule out private accounts, which she has sharply criticized in the past. But she said the accounts would have the effect of reducing funding for a program that needs more money.

"We're willing to look at whatever is put on the table as long as it doesn't add to the deficit, doesn't harm the middle class and that it has a guaranteed annuity for our seniors," she said.

Rep. Bob Matsui, D-California, the senior Democrat on the subcommittee with jurisdiction over the program, was more pointed.

"President Bush seems to have painted himself into a corner on Social Security because he says no tax increases and no benefit cuts for current or near retirees, while insisting on costly private accounts with trillions in transition and administrative costs," Matsui said.