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Republicans debate overhaul of Social Security, tax code

WASHINGTON—Some leading Republicans in Congress are weighing whether to take a chance this year on a massive legislative package that would overhaul Social Security and the income-tax code at the same time—a challenge of historic proportion that could lead to sweeping changes throughout American society.

Republicans have reached no consensus on the question, which would disrupt President Bush's preferred schedule of taking on Social Security first and tax changes later. The issue is expected to be one of the main topics that Republican lawmakers will debate during a retreat this week at the Greenbrier hotel and spa in White Sulfur Springs, W.Va.

"Linking Social Security with tax reform, we need to explore it," said Rep. Paul Ryan, a rising Republican whiz kid from Wisconsin who's pushing a bold plan to privatize Social Security. "There's a way of making them compliment each other perfectly."

Republicans such as Ryan want to seize the moment, recognizing that this is the best year to tackle difficult legislation because Bush's post-election momentum will dissipate as the 2006 elections begin to loom.

"The closer the election, the weaker the knees get around here," Ryan said.

Still, Social Security and the tax code are so enormously complex and ideologically freighted that lumping efforts to overhaul them together could doom both.

The White House is proceeding down two separate tracks, indicating that Bush may unveil a detailed Social Security plan by late February and putting off any discussion on income taxes until he hears from a tax advisory commission at the end of July.

"I don't know that the American public or Congress are capable of moving two large projects like that on different tracks," said Grover Norquist, a conservative anti-tax activist who advises the White House and lawmakers. "I'm not sure we have the energy and the focus."

On the surface, Social Security and income taxes appear to have no direct link. Americans finance the federal government's spending on everything from weapons systems to national parks through a progressive income tax created in 1913. Social Security, enacted in 1935, is financed by a separate 12.4 percent tax on payroll income up to $90,000.

But the two are linked. Many provisions in the tax code are designed to encourage retirement savings through 401(k) plans, annuities and individual retirement accounts. Any attempt to simplify the tax code could eliminate the myriad exemptions that Americans use to build nest eggs, impacting retirement plans that depend in part on Social Security.

Until lately, the idea of weighing changes in tax policy and Social Security at the same time had been floated largely by influential Democrats such as Rep. Charles Rangel of New York and Rep. John Spratt of South Carolina.

"If all of our retirement plans include tax incentives for savings, reductions for health care, and now we're talking about privatization plus some kind of benefits, the voter or constituent will want to know, `Well, at the end of the day, what have I got?'" Rangel said recently.

The merger idea gained currency last week when Rep. Bill Thomas of California, the Republican chairman of the tax-writing House Ways and Means Committee, suggested that Congress should use the president's Social Security initiative as a starting point for a broader discussion of taxes and savings.

Democrats have made it clear that they'll oppose the central element of Bush's Social Security plan—using a portion of payroll-tax money to create private savings accounts invested in stocks and bonds.

White House officials are still trying to come up with a more specific plan and are negotiating with lawmakers such as Ryan, who wants workers to be able to invest all of their payroll tax contributions into interest-bearing accounts.

Ultimately, House Republicans may lead the debate's tax component, not the White House. "The White House is going to take the lead on Social Security," Ryan said. "On tax reform, Ways and Means traditionally takes the lead."

The question facing Congress is how dramatically to act. Social Security is popular with Americans, and some Republican lawmakers have voiced doubt about private investment accounts. Some may prefer less dramatic changes to stabilize the system's long-term finances, such as modest payroll tax increases and benefit trims that Congress adopted in 1983. Many GOP lawmakers remain uncommitted.

"There are so many ways of structuring (Social Security) for the 21st century," said Sen. Jon Kyl of Arizona, a member of the Republican leadership. "The real question is how much will people want to change, and I don't know how much people will want to change. Personal accounts are a feature of it, but they're certainly not the only feature."

As for changing the income tax, the debate at its most revolutionary extremes pits a flat income tax against a national sales tax—both radical changes from the progressive-rate system that's been in place since 1913.

But Norquist predicts a more pragmatic result, akin to the tax-rate cuts and loophole closures adopted under President Reagan in 1986.

"It will look like the `86 bill—lower rates and broader tax base," he said.

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(c) 2005, Knight Ridder/Tribune Information Services.

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