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GOP senator: Taxes may be raised to help Social Security
by Lawrence M. O'Rourke
McClatchy Newspapers


December 06, 2004

Washington, D.C. - Republicans might need to raise payroll taxes to finance President Bush's proposal to allow Americans to divert a portion of their retirement savings into private accounts, according to a GOP senator who supports the White House goal of revising Social Security.

Sen. Lindsey Graham, R-S.C., a longtime advocate of creating private retirement accounts with Social Security dollars, said Congress might be forced to raise the annual tax cap on Social Security earnings from $87,500 to $150,000.

"You can't reform the system and put Social Security on solid financial footing without some sacrifice," Graham said. "I'm very open-minded about ideas on how we can achieve sustained solvency."

The result could be additional payroll taxes of up to $3,875 a year for upper-income taxpayers, according to analysts.

Graham proposed that the higher payroll taxes could be imposed for 12 to 15 years, or until Social Security gained solvency under a new retirement system.

Graham, whose plan was greeted skeptically by some conservatives, acknowledged that the notion of raising payroll taxes is "non-traditional" for congressional Republicans.

"We would be very reluctant to support higher payroll taxes on Social Security," said David John, a Social Security analyst for the conservative Heritage Foundation. "It would not be one of our top 10 choices."

But higher taxes might be "part of a package" that could generate support for Bush's plan in what is expected to be the major battle on Capitol Hill in 2005, John said.

The Graham proposal would seem to run counter to the pledge by the president and Republican leaders to use their stronger majorities in both houses of Congress to push through additional tax cuts and to make reductions enacted in 2001 and 2003 permanent.

But Bush and Republican congressional leaders, including Speaker Dennis Hastert, said they are determined to use their majority to change Social Security to guarantee its survival and to shift some of the financial risk from the government to individuals.

Graham said that Republicans, even though they control both the Senate and House, probably lack the votes to win approval of a plan that would substantially change Social Security.

Higher payroll taxes should be considered as an option, he said, and they might be linked to a reduction in the 6.4 percent payroll tax paid by employers and taxpayers.

"If we are not able to attract some Democratic support, this isn't going anywhere," Graham said. "Democrats are going to have to swim upstream to embrace the personal-account solution. Republicans are going to have to come up with a financing plan that's realistic."

Graham's proposal came as Rep. Robert Matsui of California, a leading Democratic opponent of Social Security privatization, warned that the GOP plans could push up the deficit in the Social Security trust fund by $2 trillion,

The Social Security Administration said earlier this year that Graham's plan to divert roughly two-thirds of Social Security taxes into private accounts would cost the system $1.4 trillion over 10 years, counting interest charges.

The $2 trillion, according to Matsui, ranking Democrat on the House Social Security subcommittee, would be the gap if younger Americans were allowed to divert a slice of their Social Security funds away from the system while at the same time Americans 55 and older continued to receive their full promised benefits.

Guaranteeing Americans 55 and older that they would get the Social Security checks now promised them would be essential if Bush is to get his plan approved, John said.

The Congressional Budget Office estimated in June that by 2052, Social Security would be able to pay only 80 percent of benefits.

"If Republicans took privatization off the table, and Republicans and Democrats sat together in a room, we could solve this problem in a month," Matsui said.

"Social Security needs to be reformed, not dismantled," said Barbara Kennelly, a former Democratic House member who now heads the National Committee to Preserve Social Security and Medicare. "Privatization is a gift to Wall Street but a bad investment for America's workers and retirees."

Republican sponsors of private retirement accounts have urged the president to promote his Social Security plan in two premier appearances in January - his Inaugural Address and State of the Union message_ and to detail the costs in his budget.

"There are only three real solutions to Social Security's rapidly approaching fiscal problems," said John of the Heritage Foundation. "Raise taxes, reduce spending, or make the current payroll taxes work harder by investing them through some form of private personal retirement account."


Distributed by Scripps Howard News Service.



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