WASHINGTON — President Bush Wednesday night called for a historic restructuring of Social Security that would allow younger workers for the first time to invest some of their payroll taxes in the stock market, declaring in his annual State of the Union address that without change, the venerable program is headed toward bankruptcy.
Speaking to a joint session of Congress and a national television audience, Bush sketched out in more detail than before the top domestic goal of his second term but stopped short of providing a complete blueprint to leave himself negotiating room with skeptical lawmakers. Under his plan, workers younger than 55 could divert up to 4 percent of income subject to Social Security taxation into private investment accounts beginning in 2009.
With Social Security as its centerpiece, the address laid out an exceptionally ambitious agenda as Bush gears up for another four years, one that will challenge powerful constituencies and test the capacity of a president reelected with a bare majority to simultaneously wage war abroad and transform government at home. Celebrating the success of elections in Iraq and vowing a new effort to make peace between Israelis and Palestinians, Bush also promised to rewrite the U.S. tax code, liberalize the nation’s immigration laws and rein in a litigious legal system.
Bush used his speech to reinforce his inauguration theme of spreading democracy abroad, literally repeating much of the same language about “ending tyranny in our world.” He offered no new programs or initiatives intended to achieve such a goal, but after criticism that his administration had been selective in promoting freedom, he directly if politely challenged two close allies with autocratic governments, Saudi Arabia and Egypt, to reform their systems.
He had sterner words for two other nations in the Middle East, demanding that Syria stop harboring terrorists and that Iran give up its nuclear development programs, all but encouraging Iranians to rise up against the religious government in Tehran. Yet he said little about North Korea, which has been building its own nuclear weapons program and was part of Bush’s original “axis of evil” that he mentioned in his State of the Union address three years ago.
Bush devoted a large chunk of his address to his push to restructure Social Security, an issue he has raised repeatedly since his re-election. The president also called for greater fiscal discipline, as he prepared the nation for a budget proposal that will virtually freeze discretionary spending not related to the military or homeland security. In addition, Bush called for an initiative led by first lady Laura Bush to discourage young people from falling into gang life. He also announced plans to provide special training for defense lawyers in death penalty cases, and he called for expanded use of DNA evidence to prevent wrongful convictions.
Bush reiterated his support for a constitutional amendment banning same-sex marriage, an issue that he had wavered on, citing Senate opposition since his re-election. “For the good of families, children and society, I support a constitutional amendment to protect the institution of marriage,” he said.
In their response, Democratic leaders drew a careful line, promising not to let partisanship get in the way of progress while vowing to stand up to Bush on matters of principle.
“We will be first in line to work with him,” said Senate Minority Leader Harry Reid, D-Nev. “But when he gets off track, we will be there to hold him accountable.”
Reid signaled that Social Security was one area where the Democrats would fight. “Democrats are all for giving Americans more of a say and more choices when it comes to their retirement savings. But that doesn’t mean taking Social Security’s guarantee and gambling with it. And that’s coming from a senator who represents Las Vegas,” he said.
Bush’s plan to restructure Social Security faces near unanimous opposition from congressional Democrats, who see the program as one of their party’s most enduring legislative legacies. Republican lawmakers, meanwhile, have approached the issue cautiously, worried that voters would turn on them if they believe that Republicans are cutting one of the federal government’s most popular programs.
Bush said private accounts would allow workers to harness the power of the stock market to build retirement nest eggs to cushion them against reductions sure to come in promised Social Security benefits. His plan would allow people younger than 55 to funnel a portion of their Social Security taxes into personal accounts, where the money can be invested in one of several tightly controlled stock or bond funds. Bush listed several proposals for cuts in promised Social Security benefits that would have to accompany private accounts to solve the program’s projected fiscal problems, and he said they all are “on the table” as he seeks to work with Congress to develop a plan to curb the program’s growing costs.
“Fixing Social Security permanently will require an open, candid review of the options,” Bush said. “I know that none of these reforms would be easy. But we have to move ahead with courage and honesty, because our children’s retirement security is more important that partisan politics.”
The private accounts outlined by Bush would offer a sharp departure from the system of guaranteed benefits that have been a hallmark of Social Security since it was signed into law by Franklin D. Roosevelt in 1935. Bush’s proposals also signal a potential shift in the traditionally progressive nature of the program, which for years has returned a larger proportion of contributions to low-income workers than it did to higher wage earners. The program also offers annual increases that allow payments to keep pace with the nation’s rising standard of living.
Bush’s plan calls for private accounts to be phased in beginning in 2009, when workers born in 1965 and earlier would be eligible. The next year, workers born before 1978 would be able to invest, and finally in 2011, all workers born after 1950 would be eligible for the accounts.
Workers who opt to invest in private accounts will lose a share of their guaranteed payment from Social Security, which they should be able to recoup through their private accounts, so long as their investments realize a return greater than 3 percent a year after administrative expenses, the White House said.
On other domestic matters, Bush called on Congress to pass his energy proposal, which includes the expanded use of nuclear power and expanded oil and gas exploration in environmentally sensitive areas.
“Four years of debate is enough,” Bush said. “I urge Congress to pass legislation that makes America more secure and less dependent on foreign energy.”
On foreign policy, Bush put on display what he considers two of his biggest achievements in the form of a pair of women, one from Afghanistan and one from Iraq, who voted in democratic elections in their home countries over the past few months. Sitting in the gallery next to Laura Bush, the two women were greeted by sustained applause.
“We are witnessing landmark events in the history of liberty,” the president said. “And in the coming years, we will add to that story.”
Bush said the recent election of a new president of the Palestinian Authority would create new opportunities “to break old patterns of violence and failure” in the Middle East and vowed to provide $350 million to support Palestinian security and political institutions. “The goal of two democratic states, Israel and Palestine, living side by side in peace is within reach — and America will help them achieve that goal,” he said.
Aides, however, said they could not provide a breakdown of the spending. As much of $80 million may be provided to Israel to help pay for high-tech security crossings at fences surrounding Gaza and the West Bank, said congressional officials. Moreover, Congress late last year directed that $20 million in direct aid to the Palestinians be used to pay bills owed to Israeli utilities. The United States currently provides $75 million a year to the Palestinians.
Otherwise, Bush unveiled no new substantive foreign policy initiatives. He vowed to stay the course in Iraq, training Iraqi security forces to take on the fight against insurgents so that U.S. forces could shift into “a supporting role.” He offered no timetable for withdrawing U.S. troops and prepared American viewers for the likelihood of further casualties.
“The terrorists and insurgents are violently opposed to democracy and will continue to attack it,” he said. “Yet the terrorists’ most powerful myth is being destroyed. The whole world is seeing that the car bombings and assassins are not only fighting coalition forces, they are trying to destroy the hopes of Iraqis, expressed in free elections.”
Although he talked at length about Iraq, he did not dwell on al-Qaida and made no mention of the frustrated hunt for Osama bin Laden. “Our country is still the target of terrorists who want to kill many and intimidate us all — and we will stay on the offensive against them, until the fight is won,” he said.
But he took care to challenge nations that he accused of assisting terrorists. “We expect the Syrian government to end all support for terror and open the door to freedom,” he said. “Today, Iran remains the world’s primary state sponsor of terror — pursuing nuclear weapons while depriving its people of the freedom they seek and deserve.”
In contrast to the military threat to Iraq, Bush said he would continue working with European allies on a diplomatic solution to curbing Iran’s nuclear ambitions. But he implicitly encouraged dissidents in Iran to stand up to their government. “To the Iranian people, I say tonight: As you stand for your own liberty, America stands with you.”
In softer tones, he urged two longtime allies to liberalize their repressive political systems as well. “The government of Saudi Arabia can demonstrate its leadership in the region by expanding the role of its people in determining their future,” he said. “And the great and proud nation of Egypt, which showed the way toward peace in the Middle East, can now show the way toward democracy in the Middle East.”
— Staff writer Glenn Kessler contributed to this report.