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Bush warns Social Security headed for bankruptcy, calls for change

WASHINGTON—President Bush urged Congress Wednesday to overhaul Social Security as the centerpiece of his ambitious second-term agenda, arguing that Americans can no longer count on the venerated New Deal program because it's headed for what he called "bankruptcy."

Bush made his bold proposal in a State of the Union address to a joint session of Congress and to Americans watching at home on live television, splitting his themes almost evenly between foreign affairs and domestic concerns.

Bush lauded the recent elections in Iraq, Palestinian territories and Afghanistan as proof that freedom and democracy are on the march worldwide and that his aggressive and sometimes controversial foreign policy is paying off. He said U.S. forces would remain in Iraq indefinitely and called for $350 million in assistance to the Palestinians.

Bush brought an aura of political success to his address that few American presidents have shared, for he not only just won a second term in office, but he also helped his party expand its control of both houses of Congress.

Bill Clinton, Ronald Reagan and Richard Nixon—the last three presidents to win second terms—all faced Congresses controlled at least in part by the opposition party.

Lyndon Johnson in 1965 was the last president to enjoy a position of power comparable to Bush's now. LBJ's landslide 1964 win and his even larger Democratic majorities in Congress arguably gave him even more power, which he used to push through his Great Society domestic program and to escalate the war in Vietnam.

In his address, Bush reminded listeners that he, too, has a bold agenda at home and abroad, albeit with hopes for far different results. He cast it all in terms of his—and his country's—obligations to history.

"Over the next several months, on issue after issue, let us do what Americans have always done and build a better world for our children and grandchildren," he said, according to excerpts of his remarks released in advance by the White House.

For the nation's domestic needs, Bush proposed dramatic changes in Social Security that he said are needed to fix a program headed for serious financial trouble.

"Social Security," Bush said, "is headed toward bankruptcy. And so we must join together to strengthen and save Social Security."

Bush pleaded for open minds, aware that Democrats are unified in opposing the central recommendation of his proposed changes—to divert wage taxes away from Social Security to pay for new personal-investment accounts—and that many Republicans fear political fallout at the polls in 2006 elections.

"Fixing Social Security permanently will require an open, candid review of the options," the president said. "I will work with members of Congress to find the most effective combination of reforms."

Bush also spoke to the culturally conservative values he and many of his supporters embrace, including the "culture of life" that opposes abortion.

"Our second great responsibility to our children and grandchildren is to honor and to pass along the values that sustain a free society," he said. "Government is not the source of these values, but government should never undermine them."

Looking overseas, Bush spoke in more detail about his broad goal of spreading freedom, which dominated his recent inaugural address.

"Our third responsibility to future generations is to leave them an America that is safe from danger and protected by peace. We will pass along to our children all the freedoms we enjoy—and chief among them is freedom from fear," he said.

He praised the Iraqi people for braving violence to vote last Sunday and linked American success throughout the Middle East to their success at establishing a democracy.

"We will succeed because the Iraqi people value their own liberty—as they showed the world last Sunday," he said. "We are standing for the freedom of our Iraqi friends, and freedom in Iraq will make America safer for generations to come."

Looking on from the gallery overlooking the House of Representatives, first lady Laura Bush watched with two foreign nationals meant to underscore recent U.S. successes abroad: one who recently voted in Iraq and one who recently voted in Afghanistan.

There was symbolism on the House floor as well. Rep. Bobby Jindal, R-La., showed his solidarity with Iraqi voters by showing up with one finger stained by purple ink—a symbolic salute to the joyous Iraqis who celebrated voting Sunday by waving the purple fingers that showed they'd voted.

Bush vowed to keep U.S. forces in Iraq indefinitely to help Iraqis secure their country.

"The new political situation in Iraq opens a new phase of our work in that country," he said. "We will increasingly focus our efforts on helping prepare more capable Iraqi security forces—forces with skilled officers and an effective command structure."

He said the goal of a democratic Palestine living peacefully side by side with Israel "is within reach" and promised continued U.S. help to reach that goal.

In a remark clearly meant to assuage fears that he acts unilaterally and alienates traditional allies, Bush said: "In the next four years, my administration will continue to build the coalitions that will defeat the dangers of our time." He's made overtures to European allies, notably by making Europe his first overseas trip of his second term.

On Social Security, White House aides said Wednesday that Bush would propose allowing younger workers to divert about two-thirds of their Social Security taxes into new personal-investment accounts.

Bush's plan would allow them to divert 4 percent of their salary—or about two-thirds of the 6.2 percent tax they now pay on wages up to $90,000. The account would be capped at $1,000 initially and would rise over time.

The goal is that those voluntary accounts will make enough profits to more than offset cuts in traditional Social Security benefits that are likely to be needed to shore up the program's long-term solvency.

Bush would guarantee people born in 1949 or before that their benefits wouldn't be cut and that they wouldn't be eligible to participate in the new personal accounts.

Under his plan, diverted Social Security taxes would be invested in private accounts in which pension-fund managers would invest them in a mix of stocks, corporate bonds and government bonds.

The Bush proposal is modeled in part on the federal employees' Thrift Savings Plan, a pension program with low administrative costs, which offers only a handful of investment fund options, with varying degrees of risks.

The personal retirement accounts by themselves wouldn't shore up Social Security's finances. They neither add money to the system nor change benefits.

Social Security is expected to start paying out more in benefits than it collects in annual taxes starting in about 2020, according to the nonpartisan Congressional Budget Office. It will exhaust its trust fund assets sometime between 2042 and 2052, according to projections, respectively, from Social Security trustees and the CBO.

After that, annual revenues would pay only about 73 percent of projected benefits, according to the system's trustees.

Instead, Bush aides envision cutting traditional benefits over time for those under the age of 55 and hoping that the private accounts make up the difference. Bush didn't discuss such cuts Wednesday night, saying he would work out details in negotiation with Congress.

Democrats responded that they would work with Bush when they agreed with him, but signaled that might be rare.

"When we believe the president is on the right track, we won't let partisan interests get in the way of what's good for the country. We will be first in line to work with him," said Sen. Harry Reid, D-Nev., the Senate Democratic leader, in remarks prepared for delivery. "But when he gets off track, we will be there to hold him accountable."

Reid said his party particularly opposes Bush's proposals for Social Security because they would cut benefits and add what he said was $2 trillion to the national debt.

"That's why we so strongly disagree with the president's plan to privatize Social Security," he said. "The president's plan is so dangerous. It's wrong to replace the guaranteed benefit that Americans have earned with a guaranteed benefit cut of 40 percent or more. Make no mistake, that's exactly what President Bush is proposing."

Reid called the transition costs—borrowed funds to pay benefits to current retirees while wage-tax funds are diverted into the new personal accounts—"an immoral burden to place on the backs of the next generation."

Bush takes his campaign for Social Security changes on the road Thursday for a two-day swing through five states that are home to Democratic senators he hopes to win over on this: North Dakota, Montana, Nebraska, Arkansas and Florida. Bush carried all five states in November.

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(Knight Ridder Newspapers correspondents Bill Douglas and Kevin Hall contributed to this report.)

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

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