US Social Security plan hotly debated

President Bush in May established a commission to look into Social Security

By BBC News Online's North America Business Reporter, David Schepp

Social Security benefits have become the latest bone of contention among policy makers in Washington.

President George W Bush and his Republican contingent claim the programme, which administers benefits to retirees and survivors, is near crisis, set to run out of money in the next decade.

This is too biased a document... [it sows] the seeds of panic

Former Federal Reserve vice chairman Alan Blinder

Democrats say that is nonsense and accuse the Bush administration of scare tactics in order to achieve its goal of private investment plans, in which workers would invest part of their Social Security taxes in stocks and bonds.

At issue is a draft report compiled by a bipartisan commission established by Mr Bush in May.

Looming deadline

The report says by 2016, when baby boomers - those Americans born from 1946 through 1964 - begin to retire, the government will have difficulty meeting its obligation in paying benefits and will have to look at a number of remedies to fix the situation.

The proposed solutions include raising Social Security taxes, reducing benefits or cutting other government programmes - none of which is politically popular.

Social Security has been referred to as the "third rail" in American politics. Politicians are loathe to alter a programme that serves a large and politically savvy population.

While the commission is divided equally along party lines - eight Democrats and eight Republicans - none of the members hold political office.

Biased document

Despite the evenly divided composition of the panel, Democrats and their constituents, which include senior-citizens groups and labour unions, have said the commission's report mirrors too closely Mr Bush's plan for privatising Social Security.

"This is too biased a document," said Alan Blinder, a former Federal Reserve chairman who disputes the findings of the commission

Mr Blinder said the commission report was "sowing the seeds of panic".

Meeting convenes

Amid the criticism, the White House commission, headed by former Democratic New York Senator Patrick Moynihan and AOL Time Warner chief operating officer Dick Parsons, a Republican, convened on Tuesday at a Washington hotel.

Outside, about 100 protestors, made up of labour unions, senior citizens and community activists, held signs and chanted slogans to oppose the commission's backing of privatisation.

The activists wish to see the current scheme of guaranteed benefits remain in force.

But in its interim report, the panel said the government faces the spectre of having to dip into the Social Security trust fund - the agency's reserves - by 2016 if things remain unchanged.

Around that date the agency will start to pay out more in benefits than it brings in.

Without changes, the report charges, the trust fund would be exhausted by 2038.

Under the current scheme, a tax on wages fund the benefits now received by Social Security recipients.

Lawmakers in Washington have for years been warning that as the bulk of the nation's population heads toward retirement, there will not be enough workers to make up for the shortfall in benefit payments.

Investing a portion of Social Security contributions into the stock and bond markets was proposed under the previous Clinton administration but was soundly criticised due to the volatility of financial markets.

Mr Bush campaigned on the idea in his run for the presidency last year. It received renewed interest after President Bush took office in January.