WASHINGTON – The Bush administration declined Wednesday to offer an estimate for how much it would cost long term to create the personal-investment accounts that President Bush says must be the centerpiece of any Social Security overhaul.
Treasury Secretary John Snow repeatedly ducked pointed questions about costs Wednesday in testimony before the House Budget Committee. Asked by Rep. John Spratt of South Carolina, the ranking Democrat on the panel, if the cost to taxpayers for Bush’s plan might be $4.9 trillion over 20 years – a widely cited estimate from a reputable Washington research center – Snow said, “It sounds a little bit high to me.”
The treasury secretary said he couldn’t offer long-term cost estimates until he knew what changes were going to be made to traditional Social Security benefits, beyond the new private accounts that Bush seeks.
White House aides have acknowledged that the new accounts would do nothing to fix Social Security’s long-term funding gap between wage-tax revenues and the escalating costs of retirement benefits. Bush’s position is that he’s open to negotiating fixes for that gap with Congress – except for raising taxes. That leaves future cuts in benefits as the only option. But he’s offered no concrete proposals to fix the funding gap.
“Until we know details, it is very hard to quantify what the (estimated) costs would be,” Snow said, visibly flustering some lawmakers.
“If you haven’t seen the details as secretary of the Treasury,” Spratt asked, “how can you pass judgment” on the benefits of Bush’s individual accounts?
Douglas Holtz-Eakin, the director of the Congressional Budget Office – the legislature’s own nonpartisan agency for calculating such costs – said the CBO needed more detail on Bush’s plan before it could calculate the proposal’s costs or impact on the economy.
“Not knowing that, it is impossible to say with precision,” Holtz-Eakin said.
Bush has made the creation of private investment accounts outside of Social Security, but which are funded by diverting wage-tax revenues away from Social Security, the centerpiece of his second-term domestic agenda.
He proposes to let Americans under 55 divert up to 4 percent of their salaries – capped initially at $1,000 a year, but rising annually – into the new accounts. That would take away two-thirds of the 6.2 percent payroll tax they now pay into Social Security to cover the costs of retirement benefits for today’s beneficiaries.
To keep paying retirement benefits, the government would have to borrow money to replace the revenues that are diverted to the new accounts. How much would that cost? Experts say that’s a crucial question that will have an impact on the national debt and future federal benefits for decades.
The Bush administration initially said the borrowing costs would total around $750 billion through 2015, but the new accounts wouldn’t begin until 2009 and would phase in over three years.
Once the accounts are fully operational, the 10-year borrowing costs they’d impose on the Treasury would total $1.4 trillion, according to the liberal Center for Budget and Policy Priorities, which is staffed by former senior U.S. budget officials. Over 20 years, borrowing would grow to about $4.9 trillion, according to the center.
“It’s completely impossible to be less than $4 trillion,” said Jason Furman, a Harvard professor and budget expert at the center. Furman arrived at that figure by projecting forward the 2015 cost estimate for individual accounts offered by the Social Security Administration.
House Budget Committee Republicans countered that over the long term, individual accounts would foster individual savings and reduce Social Security commitments.
“We’re improving the balance sheet of the United States,” said Rep. Rob Portman, R-Ohio.
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