WASHINGTON -- A dispute between Republicans and Democrats over whether to let workers invest some Social Security money in the stock market is simmering below the surface of the presidential primary campaign and seems destined to bubble over in the general election race.
Both major Republican candidates have quietly embraced proposals to shift payroll taxes away from the current system and into individually managed investment accounts, exposing Social Security funds to the potential profits and perils of the stock market.
The idea surfaced in passing during Tuesday night's Republican debate in South Carolina, when Sen. John McCain of Arizona suggested that people should be able to invest part of their Social Security taxes in the stock market. Gov. George W. Bush of Texas supports the idea as well, though he has been reluctant to discuss it in public.
Both Democrats aspirants, Vice President Al Gore and former Sen. Bill Bradley of New Jersey vehemently oppose privatization but are keeping the issue in their quiver for the general election.
But Republicans have been similarly circumspect, making Social Security privatization something of a stealth issue. McCain has been quick to tell voters he would not only save the entire Social Security surplus but would also set aside 62 percent of the non-Social Security surplus to shore up the system.
Barely mentioned on the campaign trail is his plan for all that money, more than $2.7 trillion in all: to transform the Social Security system into a program where taxpayers would be able to divert about 20 percent of their payroll taxes to the stock market.
Bush has been even more cautious. Two years ago, the governor sat down with two free-market evangelists from the libertarian Cato Institute to get the hard sell on the privatization of Social Security, nodding politely as they made their pitch.
Bush told the emissaries they were absolutely right, according to Michael Tanner, director of the Cato Project on Social Security Privatization. But there was a catch. Bush said he would never talk about such a perilous topic on the campaign trail.
Unlike McCain, Bush would devote almost all the non-Social Security surplus to tax cuts, leaving far less for money to move toward a private investment system.
But Bush does cryptically endorse privatization with one phrase on his Web site, which says he "supports making personal retirement accounts part of Social Security reform."
His economic advisers are more explicit about Bush's support for privatization, though they are equally sketchy about how he would get there.
"He's firmly behind the idea of personal accounts, no question about it," said John Taylor, a member of Bush's economic team.
But Lawrence Lindsey, Bush's lead economic adviser, added, "It's going to take a concerted effort in bipartisan negotiations to actually solve the problems" of the Social Security system.
"The governor has laid out a set of principles on which a final solution should be based," said Lindsey, a former Federal Reserve Board governor. "You don't want to flesh out the details until the negotiations begin."
For supporters of privatization, such caution is irritating.
"It's not something he thinks the American people could grasp," Tanner, of the Cato Institute, said of Bush.
Opponents of Social Security privatization say they are frustrated by the Republican candidates' unwillingness to flesh out their proposals.
"If they aim to privatize the system, in whole or in part, they have an obligation to talk about what they intend to do," said Robert Reich, President Clinton's former labor secretary, now an adviser to Bradley.
'Walking on eggs'
But Democrats and Republicans alike understand why the candidates have taken a low-key approach to a hot-button subject.
Though its voltage might be a little lower than it once was, Social Security remains the third rail of American politics. Bob Shrum, Gore's media adviser, suggested that any proposal that can be framed as tampering with Social Security can be turned against its proponent.
"Everybody is going to be walking on eggs on this issue," said Henry J. Aaron, a Social Security expert at the Brookings Institution.
Inspired by the stock market's boom, privatization advocates want to see some or most of the 12.4 percent payroll tax diverted from Social Security to private accounts managed by individuals, who could invest that money in stocks or bonds.
That way, they say, the Social Security system could harness the power of the market, making it possible to fund the retirement of the baby boom generation without raising payroll taxes or cutting benefits. Now, excess Social Security revenues are held in low-risk, low-gain Treasury bonds.
Aside from philosophical disputes, there is a costly logistical problem with privatization. Most of the money that workers now send to Social Security goes to fund retirees already using the system. If, as McCain wants, 2.5 percent to 3 percent of a worker's income is shifted to a private account, that money must be made up so it does not come out of a senior citizen's pocket.
McCain proposes making up that money with the federal budget surplus. Kevin Hassett, McCain's chief economic adviser, said $2.7 trillion over 10 years should be enough but, he conceded, future administrations could need even more.
"We want to have private accounts," Hassett said. "We looked at the costs and set the money aside. Bush wants it too, but he just sits and hopes it can happen."
Bush would set aside the $2 trillion from the Social Security surplus to help make the transition to private accounts. But he would not take money from income taxes that are swelling the non-Social Security surplus.
Lindsey, the Bush adviser, agreed that the cost of the transition would be huge. In fact, he said, McCain's plan would provide at most only 10 percent of the necessary funding absent major changes to the system, such as benefit cuts or tax increases.
Those changes would have to come through protracted, bipartisan negotiations, though Bush -- like the other candidates -- has pledged not to cut benefits or raise Social Security taxes.
The Republican candidates might be treading lightly on the Social Security issue, but the Democratic nominee is almost certain to attack any proposed changes in the fall.
"It is going to be an issue in the general election," promised Chris Lehane, Gore's campaign spokesman. "I do think there are many Americans, and many experts, who think privatizing Social Security is a dubious proposal."
Democrats say opening Social Security to the vagaries of the stock market would be too risky, making some workers richer in retirement but some workers poorer. Social Security, they say, is supposed to be a minimal social insurance program.
"The vice president is not in favor of anything where people could go into the private market with the Social Security money and potentially lose it," said Elaine Kamarck, the Gore campaign's chief domestic policy adviser.
"From a policy perspective, it's a proposal fraught with problems."