Thompson’s Social Security plan slows growth of benefits

WASHINGTON – Republican presidential candidate Fred Thompson on Friday proposed slowing the growth of Social Security benefits and creating voluntary, government-matched savings accounts, becoming the first candidate of either party to offer a detailed proposal to fix the nation’s retirement system.

Thompson’s plan draws on ideas favored by conservatives: a reduction in benefits, rather than an increase in payroll taxes; and a shift toward private accounts, rather than government-provided payments. As a result, the proposal drew immediate criticism from liberals, who said it would severely reduce Social Security benefits, especially for low-income older Americans who rely most heavily upon them once they reach retirement.

Under Thompson’s plan, Americans would be offered the option of contributing an extra 2 percent of their salaries to a retirement savings account. As with some corporate 401(k) plans, the government would contribute $2.50 for every dollar that an individual saved, up to a maximum of $12,000 per year.

To pay for the savings accounts and to help keep Social Security solvent, Thompson would change the way benefits are calculated. Over the next 50 years, benefits would grow much more slowly under Thompson’s proposal than in the current system.

Those nearing retirement would be exempted from Thompson’s formula. But Thompson argued Friday that even by requiring an increase in the retirement age to receive full benefits, people will be better off with the combination of reduced Social Security payments and money from their savings accounts.

“There’s an awful lot of people out there who depend on Social Security for all or part of their income,” Thompson told reporters. “It is unsustainable as presently constituted, and everybody knows it.”

Economists have said that without changes, the Social Security system will no longer have enough money to pay benefits to all retirees starting in 2041.

But with less than two months before the 2008 voting begins, candidates have generally been reluctant to confront the Social Security issue. Sen. Hillary Rodham Clinton, D-N.Y., has said economic growth will deal with the projected shortfalls in the system. Her chief Democratic rivals have said that wealthy people should pay Social Security taxes on the money they make above the current cap of $97,500 each year. But no one has offered a specific plan.

Among Republicans, former New York Mayor Rudy Giuliani, Arizona Sen. John McCain and former Massachusetts Gov. Mitt Romney have talked in general terms about private savings accounts, but none has offered a specific plan. All the major GOP candidates have rejected increasing Social Security taxes as a solution.

Thompson’s aides said they hope their candidate will get credit for tackling a difficult issue directly, without fear of the criticism he is likely to get.

“Nobody wants to talk about it, except to say it’s a big problem and then change the subject,” Thompson told reporters Friday as he unveiled his plan. “If somebody’s got a better idea, put it on the table. But don’t talk to me about economic growth doing it.”