Wednesday, January 20, 1999

Social Security plan is big, bold and controversial




BY ROBERT A. RANKIN
Knight Ridder News Service

        WASHINGTON — President Clinton's plan to save Social Security and Medicare is the biggest, boldest proposal he has made since his abortive 1993-94 health-care reform crusade, and may prove equally controversial.

        Mr. Clinton proposes to spend nearly $3.4 trillion over the next 15 years to solve the two biggest financial challenges facing the government for the next generation, to rescue both popular programs without the pain of raising taxes or reducing benefits.

        Without reforms, Social Security will be able to pay only 72 cents of every dollar it promises retirees in pension benefits starting in 2032, according to the system's trustees. But Mr. Clinton's plan to channel $2.7 trillion into Social Security would cover all current benefit costs until 2055.

        In addition, Medicare — which covers most medical expenses for the elderly — is projected to go bankrupt in 2008. But Mr. Clinton's proposal to give Medicare up to $650 billion extra over 15 years would pay for all current benefits through 2020.

        Many Republicans objected to the mechanics of Mr. Clinton's plan. Some accept parts of it but prefer to devote more of the surplus to tax cuts.

        “We didn't balance the budget so the government could grow,” complained Senate Budget Committee Chairman Pete Domenici, R-N.M., who sharply criticized Mr. Clinton's seizure of nearly the entire surplus, saying his plan would preclude any income-tax cuts “for the next 15 years. ... We think taxpayers should get that money.”

        But analysts of every stripe acknowledged that Mr. Clinton's bold proposals were a political master stroke, certain to ignite a great national debate over how to spend the looming surplus funds — if the Senate finishes his impeachment trial reasonably soon.

        Mr. Clinton thus posed an implicit choice to Congress and the country, between bogging down in impeachment or governing imaginatively for the future.

        “My instinct is, if the Senate starts calling witnesses and the impeachment trial drags on into April, you can probably kiss any significant legislation goodbye,” said Henry Aaron, an economist at the Brookings Institution, a centrist think tank, who liked the thrust of Mr. Clinton's plan.

        One big question mark, however, is whether the expected $4.4 trillion surplus turns up.

        The most controversial element of Mr. Clinton's plan calls for creating a new government mechanism to oversee investment of hundreds of billions of dollars in the stock market.

        The federal budget is projected to run the $4.4 trillion surplus over the next 15 years; Mr. Clinton proposes putting 62 percent of it into the Social Security trust funds. A new board would oversee investment of about 25 percent of that in stocks; the rest would be invested in Treasury bonds, as all trust fund assets are today.

        Conservatives fear that permitting government to invest so much directly in stocks could lead to federal pressure, through ownership power, on private corporations to follow politically directed policies rather than ones set purely on business interests.

       



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