Thompson Unveils Social Security Plan

Republican's Proposal Would Create Savings Accounts, Index Benefits To Inflation

(CBS)  By CBS News' John Bentley

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Republican presidential candidate Fred Thompson outlined Friday a plan to overhaul Social Security that he says would keep the program solvent, but, studies say, could also significantly lower benefits relative to the current system.

Thompson is the first of the major candidates to outline a plan for preserving the entitlement program, which he says will go bankrupt by 2041 if no changes are made. “The ugly truth is that we’re going to lose it as we know it if we don’t do something about it,” Thompson said. “Our current path is unsustainable.”

Under his plan, which the former senator unveiled in Washington, workers would be able to contribute two percent of pre-tax income into a personal savings account, with contributions matched by the government - a proposal not unlike that put forward by President Bush early in his second term that failed to gain traction in Congress.

Benefits under Thompson's plan would be indexed to inflation, not wages as they are now. Because inflation rises at a smaller rate than wages, the practical effect of this change would be a reduction in benefits when compared to the current system - a difference of nearly 50 percent, according to some studies.

“It’s idealistic and does not have a huge political upside,” Thompson said. “But we need avoid pitting one generation against each other.”

However, the plan would preserve benefits for those over 57 years old, a move that could make the proposal more acceptable to elderly Americans, who tend to vote in large numbers.

While admitting his plan would cut benefits to future retirees, Thompson said he believes it is better to solve the Social Security problem now than waiting until the system collapses. “Personal retirement accounts and economic growth cannot solve this problem, even though my opponents say it can,” he said.