WASHINGTON -- Long considered the "third rail" of American politics -- touch it and you die -- Social Security is emerging as a defining domestic issue between President Bush and his Democratic challenger, Sen. John Kerry.

While neither candidate has offered a specific proposal to save the financially troubled federal retirement program, they have staked out opposing positions. Bush has called for personal investment accounts, while Kerry has vowed not to "privatize" the program.

Social Security is emerging as an issue because Bush "has to have a domestic agenda, and this will be a major part of it," said David John, a policy analyst with the conservative Heritage Foundation. On the other hand, he said, Bush's position "is easy for the Kerry campaign to attack."

In numerous campaign stops over the past two weeks, Bush has mentioned Social Security as part of his theme that Americans should have "ownership" of their homes, businesses and accounts for health care and retirement.

"We want younger workers to be able . . . to own a personal retirement account when it comes to Social Security. An account they can call their own and pass on from one generation to the next," Bush said recently in Pittsburgh.

Social Security reform will be a major domestic priority for Bush if he is elected to a second term, conservative observers agree.

Bush's tax cuts and education reforms have largely been accomplished, leaving Social Security as "the one piece of unfinished business" on the domestic agenda, said Matt Moore, a senior policy analyst with the National Center for Policy Analysis, a conservative research organization.

Bush has not explained how Social Security would replace payroll tax revenue it now uses to pay benefits if some funds were diverted to personal accounts. Likewise, Kerry has said much less about what he would do to reform the program than what he will not do.

"As president, I will not privatize Social Security. I will not cut benefits," Kerry said in his acceptance speech at the Democratic National Convention.

Kerry's position has been that a strong economy and minor changes in calculating annual cost-of-living adjustments can largely solve Social Security's long-term financial problems.

"It's a fairly mainstream Democratic position to argue that that is all that needs to be done," said Robert Reischauer, president of the Urban Institute, a liberal research organization.

Concerns have long been mounting about what will happen when the 77 million baby boomers born between 1946 and 1964 begin reaching retirement age. Boomers who take early retirement at age 62 will begin drawing benefits in 2008.

Social Security's trustees estimate that the program has enough money pledged in trust funds to provide full benefits until 2042. But they note that payroll taxes will fall short of paying annual benefits beginning in 2018. The government must then begin using general tax revenues to redeem the trust fund pledges, creating pressure either to raise taxes or cut other programs.

Plans to deal with the approaching funding crisis have gained urgency in recent years.

Bush's promises to allow young workers "to manage and own some of their own retirement accounts" echoes his campaign position four years ago. But the president has never specifically said how he would accomplish that goal.

Shortly after taking office, Bush appointed a 16-member bipartisan commission headed by the late former Sen. Daniel Patrick Moynihan, D-N.Y., and Richard Parsons, then co-chief operating officer of AOL Time Warner Inc. The commission's instructions were to recommend a plan to provide private investment accounts as part of Social Security.

Instead of a single plan, the commission came back in December 2001 with three alternatives, each of which called for sending part of the system's payroll taxes to individually managed private accounts instead of the Social Security trust fund.

The most widely supported option would divert 4 percent of payroll taxes, up to $1,000, into personal investment accounts. Upon retirement, a worker's account would be converted into an annuity, and his or her Social Security benefits would be reduced accordingly.

Bush has indicated that his proposal would be voluntary and would not affect those who are already retired or nearing retirement age, although he has not specified what age would be covered.

Since the commission issued its recommendations, there has been no action by the Bush administration or Congress on the issue.

"What he's got is a framework," John said. "There will have to be a lot of details and a lot of discussion before this is a retirement plan you could make a decision on."

Meanwhile, several Republican lawmakers have proposed reforms. Many of these plans call for diverting a larger share of the 12.4 percent payroll tax shared by workers and employers to the private accounts.

Kerry has ruled out most proposals to cut benefits, raise the eligibility age or impose a wealth test. But he has indicated he might consider limiting benefits for wealthy retirees.

Appearing on "Meet the Press" last year, Kerry noted that "someone who's very wealthy is fully repaid in their Social Security by the time they are 77 years old. So that wealthy person may be drawing down money they didn't put in, plus interest, from somebody earning $20,000 a year."

Jason Furman, the Kerry campaign's economic policy director, said Kerry has not specified at what point, or by how much, benefits would be reduced. But Furman said the cap would likely be for people with incomes above $200,000, and that benefits would not be eliminated.

"It's not a means test," Furman said. "Everyone would get Social Security benefits."

Kerry has also indicated he would favor adjusting the formula used to determine what portion of wages is taxable. Currently, the amount is capped at $87,900, but since 1983, the percentage of the nation's total payroll subject to the tax has decreased from about 90 percent to about 80 percent.

Several proposals from both Democrats and Republicans have called for raising the ratio closer to 90 percent, which would lift the cap by a few thousand dollars.

llipman@coxnews.com

Copyright 2004 The Austin American Statesman
Austin American-Statesman ( Texas)