NEW Social Security plan addresses tough choices of benefit cuts, tax increase, authors say

Tuesday, July 31st 2001, 12:00 am

By: News On 6

WASHINGTON (AP) _ The architects of new Social Security legislation to create personal investment accounts that President Bush favors while cutting benefits and taxing more income said Tuesday the plan should be a model for the tough choices facing the system.

``No one said the choices we face are easy, but anyone who tells you that there is a painless way to fix Social Security isn't telling the whole truth,'' said Rep. Jim Kolbe, R-Ariz.

``You can cover up and shift the cost of reform, but you cannot eliminate the cost of reform,'' he said.

Kolbe and Rep. Charles Stenholm, D-Texas, were responding to critics of their plan, including the White House and House leaders in both parties. President Bush favors personal investment accounts but not the proposal's tax increases.

Meanwhile, at a congressional hearing on Social Security, Republicans favoring private accounts said the United States should look to other countries, such as the United Kingdom, Sweden, Australia and Chile, that have successfully reformed their retirement systems.

``Many nations examined all the available alternatives, as we are doing now, and chose to use personal accounts to help sustain and supplement the benefits that have lifted seniors out of poverty,'' said Rep. Clay Shaw, R-Fla., chairman of the House Ways and Means subcommittee on Social Security.

But the ranking Democrat, Rep. Robert Matsui of California, said those countries ``have no relevance to the U.S. economy,'' and differ greatly in population, aging, poverty rates and government spending for retirement.

The Kolbe-Stenholm bill is the first detailed plan offered in Congress this session that would create the private accounts that Bush wants. But it won't get White House support.

``A tax hike is a tax hike is a tax hike, and the president opposes tax hikes,'' White House spokesman Ari Fleischer said Monday.

House Speaker Dennis Hastert, R-Ill., and Minority Leader Dick Gephardt, D-Mo., also said they could not support the bill.

The bill's authors urged critics to look at the entire plan instead of the politically unpopular provisions of cutting benefits and increasing taxation.

``When critics on both sides of the aisle aim their artillery at isolated elements of our plan without outlining a complete, sustainable strategy of their own, we find it difficult to read the criticisms as more than political gamesmanship at its ugliest,'' Stenholm said.

To pay for the private accounts, benefits would be cut, especially for middle- and upper-income workers. The bill also would raise the level of earnings that could be taxed, reduce cost-of-living adjustments and speed up the current schedule raising the retirement age from 65 to 67.

Bush favors a voluntary approach for younger workers to help shore up funding as the large baby boom generation starts retiring in the coming decade. He has not said how such a plan would be funded, and he convened a White House commission to work out details. Among his requirements: Benefits to retirees or people nearing retirement could not be reduced and payroll taxes could not be increased.

The Kolbe-Stenholm proposal also would:

_Let workers invest 3 percent of their first $10,000 of earnings and 2 percent of remaining taxable earnings into a personal account.

_Supplement accounts for low-income workers. The government would match 50 percent of any voluntary contributions those workers make.

_Let workers choose a private investment company once an account balance reached $7,500.

_Cut guaranteed benefits for an average wage earner in 2020 by 19 percent and a maximum wage earner by 25 percent, but increase a low-wage worker's guaranteed benefits by 4 percent. Balances in private accounts are assumed to make up for any cuts.

_Raise the taxable wage base to 86 percent of earnings from the current 83.1 percent. It would affect workers with income over $90,800.