Bush's Social Security plan is called into question

President George W. Bush's &to=http:// english.pravda.ru/main/2002/06/19/30703_.html ' target=_blank>Social Security plan is in danger of sinking from a heavy load of contention. House Ways and Means Committee Chairman Bill Thomas wants to rescue it by loading on even more controversy.

Thomas is considering a broader legislative package that includes new savings incentives and long-term health-care benefits. The plan, according to people who have discussed it with Thomas in recent days, could be financed by replacing at least part of the Social Security payroll tax with some form of consumption tax.

The California Republican, who has outlined his thinking to key economic and political experts in recent weeks, is skeptical of Bush's proposal to divert some payroll taxes to personal accounts invested in stocks and bonds. Democrats have insisted the accounts must be taken off the table before they'll even consider compromising, reports Bloomberg.

According to the New York Times, under current law, initial benefits for retirees are set by a formula based on the growth in wages throughout the economy. Mr. Bush's plan would leave that formula intact for &to=http:// english.pravda.ru/letters/2002/04/23/27894.html ' target=_blank>low-income workers. But for upper-income workers, the formula would shift to one based on prices, which tend to grow more slowly than wages. For middle-income workers, the formula would blend inflation and wage growth in setting benefits.

Over the long run, the effects, in terms of savings to the retirement system and reduced income to many retirees, would be substantial. For average-wage earners - making around $36,500 this year - the benefit cut would be 16 percent if they reach retirement age in 2045 and 28 percent if they retire in 2075, under the approach favored by Mr. Bush. For upper-income people - making $90,000 or above this year - the benefit cut for those retiring in 2045 would be 29 percent, and for those retiring in 2075 it would be 49 percent. Low-income workers would get the entire benefit now promised to them when they retire.