A White House memo e-mailed to influential conservatives makes the case for cutting future Social Security benefits and says support must be built for private investment accounts by convincing the public the system is "heading for an iceberg."
Calling President Bush's effort "one of the most important conservative undertakings of modern times," Karl Rove deputy Peter Wehner says in the e-mail that "the Social Security battle is one we can win." Doing so would advance the idea of limited government and could transform the nation's political landscape, he said.
White House spokesman Scott McClellan said the e-mail was sent Monday to "opinion leaders" to lay out "the challenges we face and the importance of seizing this opportunity to strengthen Social Security for our children and grandchildren and provide them with some ownership over their retirement savings."
The Wall Street Journal, which first reported the memo, said it had been sent to conservative allies of Mr. Bush. The president faces skepticism in his own party from conservatives who support private investment accounts but oppose benefit cuts as politically foolish.
"The president should go for a very large [private investment] account because it's going to take exactly the same amount of energy to get a large account as a small one, and you get a dramatically bigger reward with a large account," former GOP House Sepaer Newt Gingrich told the New York Times. "And anything that changes benefits on an involuntary basis will allow the Democrats, the AARP and the unions to beat our brains in. It isn't politically do-able."
Democrats think the White House e-mail "shows the strategy is to instill panic," said Rep. Charles Rangel, D-N.Y., the top Democrat on the House Ways and Means Committee.
In the e-mail, Wehner, director of White House Strategic Initiatives, urged cuts in future promised benefits as the best approach to overhaul the system to private investment accounts. Failure to make the cuts would cause "short-term economic consequences," he wrote.
The e-mail outlines some of the difficult financial trade-offs required to carve out accounts from the system — details the administration has so far refused to discuss publicly.
Mr. Bush's 2001 Social Security commission, in a plan serving as a blueprint for the overhaul, proposed changing the formula used to calculate benefits, resulting in cuts in promised benefits of 0.9 percent to nearly 46 percent. The investment accounts, which would be similar to 401(k)s, are expected to make up the income loss.
McClellan cautioned that Mr. Bush had not decided on an approach. But Wehner's e-mail implied that the White House was further along in its planning than it has claimed.
"At the end of the day, we want to promote both an ownership society and advance the idea of limited government," the e-mail said. "It seems to me our plan will do so; the plan of some others won't."
The administration is focusing on a proposal that would let workers divert two-thirds of their payroll taxes into investment accounts, up to an annual limit of $1,000 to $1,300, an administration official told The Associated Press on Tuesday. Supporters are embroiled in a fierce debate over the size of the accounts, with an influential segment pushing for much larger investments.
But to achieve the overhaul, the administration must "establish an important premise: the current system is heading toward an iceberg," Wehner's e-mail said.
Supporters and opponents agree the future financial shortfall must be addressed, but they sharply differ on the severity and the solutions.
Social Security is projected to start paying out more in benefits than it collects in taxes in 2018, according to Social Security trustees. It can pay full promised benefits until 2042. Then, it can cover about 73 percent of promised benefits. The nonpartisan Congressional Budget Office predicts solvency until 2052.
"We need to establish in the public mind a key fiscal fact: right now we are on an unsustainable course," Wehner's e-mail said. "That reality needs to be seared into the public consciousness; it is the precondition to authentic reform."
But Democrats say the White House is exaggerating the system's future financial picture to dismantle the New Deal program.
"This memo shows that some in the Bush administration will resort to the worst kind of scare tactics to undermine Social Security," Rangel said.
The e-mail criticized Democrats as "the party of obstruction and opposition. It is the Party of the Past."
Asked if it was improper for the government to send a partisan e-mail discussing political strategy, McClellan said he disagreed with that characterization. He said the message "is simply stating the serious nature of the Social Security crisis we face and why we are in this situation."
Besides cutting future promised benefits, the administration may be forced to borrow $1 trillion to $2 trillion to continue paying benefits to current retirees if tax revenue is diverted into personal accounts for younger workers.
If the benefits are not reduced for those younger workers when they retire and the government has borrowed "trillions," an economic disaster could occur: "the markets go south, interest rates go up, and the economy stalls out," the e-mail said. "To ignore the structural fiscal issues — to wholly ignore the matter of the current system's benefit formula — would be irresponsible."
The message said that implementing the accounts and avoiding the benefit cuts would require tax increases or raising the full retirement age, which is already up to 66 for people who are turning 62 this year and thus eligible to draw reduced benefits.
Under current law, the full retirement age moves to 67 in subsequent years.