WASHINGTON -- Goaded by Vice President Al Gore, Gov. George W. Bush plans to announce early next week his support for a plan to partially privatize Social Security, allowing workers to invest part of their payroll taxes in the stock market.
The Texas governor's speech promises to launch one of the defining debates of the 2000 presidential election: how best to secure the ailing Social Security system for the baby boom generation.
While Bush is embracing what would be the most drastic change to Social Security since its inception in 1935, Gore favors a far more modest plan. He would use the current Social Security surplus to pare down the debt, with the interest savings pledged toward extending the program's solvency.
"This really shifts the ground of the campaign," said Michael Tanner, director of the Cato Institute's Project on Social Security Privatization. "Gore wanted to fight this election out on 'saving Social Security vs. tax cuts.' Now, it's going to be, 'How do you save Social Security?' Whoever wins will have a real mandate."
All week, Gore has been trying to force Bush to commit to a privatization plan that the governor has been slow to spell out. Yesterday, in Atlantic City, N.J., the vice president castigated Bush for making the "smug assumption" that he could win the presidency without detailing his plans for Social Security.
"To me, Social Security is more than a government program," Gore told the New Jersey AFL-CIO. "It is a solemn compact between generations. It is responsible to make the strength and solvency of Social Security a major national priority. And it is responsible to tell the American people exactly how you propose to do it."
The Bush campaign responded yesterday in what was, in effect, the governor's first public defense of Social Security privatization.
Aides to the Republican candidate noted that Gore owns between $250,000 and $500,000 in stock and that federal employees are allowed to invest retirement funds in the stock market.
"Al Gore believes investing in the stock market is good enough for himself and federal workers, so how can he oppose the same retirement security for younger Americans?" asked Bush's communications director, Karen Hughes.
It is not clear whether Bush will detail a Social Security reform plan next week or unveil only the broad outlines.
Scott McClellan, a spokesman for the Bush campaign, said yesterday that the speech "will have all the specifics" voters need to assess the plan. Some details remain to be worked out, such as whether workers could divert 2 percent, 2 1/4 percent or 2 1/2 percent of their income to personal investment accounts. That range would divert to private accounts between 16 percent and 20 percent of the total Social Security payroll tax.
With stock prices fluctuating wildly in recent weeks -- mostly to the down side -- the timing could be considered perilous.
"It's a pretty risky gamble on his part, simply because the stock market appears to be very volatile," said Robert Reischauer, president of the Urban Institute. "And what looks like an attractive alternative to many voters today could turn to dust by November."
An informal adviser to Bush said the plan the campaign is considering would hew closely to proposals already on Capitol Hill.
Those plans -- drafted in the House by Democrat Charles W. Stenholm of Texas and Republican Jim Kolbe of Arizona, and in the Senate by Republican Judd Gregg of New Hampshire and Democrats John B. Breaux of Louisiana and Bob Kerrey of Nebraska -- envision allowing workers to divert 2 percent of their salaries to individual savings accounts.
In their plans, guaranteed benefits for middle- and upper-income workers would be cut, under the theory that higher rates of return on individual investment accounts would more than make up for benefit cuts from the remaining Social Security system.
Workers could then invest the money in any combination of a stock fund, bond fund or Treasury securities.
Opponents, including Gore, have argued that such plans would subject what is now a guaranteed retirement benefit to the vicissitudes of the stock market.
Perhaps more important, any such system would be highly expensive. Social Security taxes paid by current workers go directly to current retirees. Thus, the 2 percent that would be taken out of the Social Security payroll tax would have to be made up with tax money from another source.
Tanner, an enthusiastic supporter of privatization, said the projected Social Security surplus -- estimated at more than $2 trillion over the next decade -- would be enough to cover that cost in the short run. But once the baby boomers begin to retire, he conceded, a shortfall would quickly develop.
"The reality is, in the long term, you're going to have to find some money," he said.
A 2 percent diversion plan developed by Martin Feldstein, an economic adviser to Bush, would boost the projected Social Security deficit by $6.4 trillion over 25 years, according to an analysis by the liberal Center on Budget and Policy Priorities. Henry Aaron, a senior economist at the Brookings Institution, estimated that such a plan would double the projected Social Security shortfall over 75 years.
To make up for some of that money, the House plan would trim guaranteed benefits by up to 50 percent for upper-income retirees, Aaron has calculated.
Even retirees with incomes of $30,000 a year would begin to see their benefits cut, though retirees with incomes of $25,000 or less would be guaranteed returns at least as rewarding as current Social Security benefits. The plan also envisions raising the retirement age from 65 to 67.
Stenholm said yesterday that tough choices are unavoidable. And, he said, young workers with little faith in the Social Security system would gladly embrace the bargain being offered.
"You ask a young person earning $60,000 or more if they can put 2 percent of their income into their own investment account and in return have a lesser guaranteed benefit, every young person I know would say, 'Hey, we'd take that,'" Stenholm said.
But posing such delicate choices in an election year is always risky.
"If that is what they're proposing, I think Bush is in deep trouble," Aaron said. "Gore can make huge headway among middle-earner workers."
Kolbe said yesterday that "there's no question Gore will demagogue this issue."
Gore advisers relish the chance to dig into a Bush Social Security plan. Indeed, said Gore's domestic policy adviser, Elaine Kamarck, forcing Bush to detail his Social Security privatization plan is critical to Gore's election strategy.
The vice president's advisers know that when the White House and congressional budget offices release new federal budget surplus projections next month, the new expected surplus will be so much larger that it will be more difficult to paint Bush's proposed tax cut as a "risky scheme."
But once the cost of Social Security privatization is factored in, Kamarck contended, no projection will be large enough to keep the budget balanced.