ANALYSIS: Thompson's Social Security Plan

Nov. 9, 2007— -- Republican presidential contender Fred Thompson's plan to save Social Security and protect seniors, which he introduced Friday afternoon in a Washington, D.C., hotel, differs starkly from standard election year pablum on the subject in one key way: He's actually treating voters like adults.

The former Tennessee senator is proposing fixes for the Social Security system -- and the looming financial shortfall -- with legislation people will not like, reducing benefits for future retirees.

When it was suggested in an interview with ABC News that his opponents would almost certainly portray him as wanting to cut Social Security benefits, Thompson said, "Of course they will."

"That's why people don't bring it up," Thompson told ABC News, "so therefore we continue on the current path and we bankrupt the system."

Solving Social Security

Friday Thompson declared, accurately, that the current system is "unsustainable. This commitment cannot be made under present circumstances without dipping into general revenue or raising taxes."

The baritone-voiced former actor suggested that "there are no free lunches for anybody" in any real solution.

It's a marked change from the past. Of the seven leading Democratic and Republican presidential candidates, three -- Thompson, Sen. Barack Obama, D-Ill., and former Sen. John Edwards of North Carolina -- are actually acknowledging specific measures to fix the Social Security system that would inflict some pain on the voters in the form of either benefit reductions or tax increases.

It is perhaps an indication that some politicians -- and even perhaps some voters -- are prepared to touch the so-called "third rail" of American politics, so named because its mere touch is thought to be lethal.

Baby Boomers Retiring

Last month, Kathleen Casey-Kirschling, the very first member of the baby boom generation, applied for Social Security benefits, the first of 80 million in her generation to do so. As this generation eases into retirement, the ratio of workers contributing to Social Security for every recipient of the government entitlement program -- currently 3.3 to 1 -- will decrease, shifting to 2.1 to 1. Over the next 40 years, federal spending on Social Security is projected to grow by 50 percent.

Secretary of the Treasury Henry Paulson has tried to sound the alarm, in September predicting a $13.6 trillion shortfall in the Social Security system the "indefinite future."

Social Security, the report said, only can be made solvent by reducing benefits, raising taxes or a combination of the two.

Social Security taxes are currently capped at the first $97,500 in income. Edwards has proposed imposing the 12.4 percent tax on incomes above $200,000 while continuing to exempt income between $97,500 and $200,000. Obama has suggested eliminating the cap altogether.

"I know this guy in Omaha, named Warren Buffet, who made $46 million last year (an off year for him), and he stops paying Social Security taxes when he hits his first $98,000!" Obama recently told a crowd of Iowans. "After the first $90,000 he stops paying, and doesn't pay 1 percent of the rest. Anyone making $97,000 or less, paying payroll tax on 100 percent of their income. Not fair. Doesn't make sense. And that is the best way to fix it."

Thompson is proposing indexing future Social Security benefits to prices instead of wages for future recipients who are currently 57 years old or younger.

The other four presidential front-runners -- Sens. Hillary Clinton, D-N.Y., and John McCain, R-Ariz., former New York Mayor Rudy Giuliani and former Massachusetts Gov. Mitt Romney. -- have not made any specific proposals acknowledging the painful steps Paulson and most impartial experts suggest are necessary.

"I want you to be able to make some personal decisions about your pension money," Giuliani said Thursday in Ames, Iowa. "Social Security is your pension money ? it's a contract, it's a deal that the government has to guarantee." Giuliani then discussed personal retirement accounts, strengthening the economy, "and then working out a solution with Democrats and Republicans engaging with each other, is also very valuable."

Asked about the looming shortfall at the Oct. 30 Democratic debate, Clinton said, "I have said consistently that my plan for Social Security is fiscal responsibility first.

"To deal with long-term challenges, she said, "we would have a bipartisan commission."

Thompson mocked the "bipartisan commission" proposal Friday.

"A novel concept," Thompson said, his voice dripping with sarcasm. "I don't know why anyone hasn't thought of that before. That's kind of the first refuge of the difficult problem: Washington can handle anything that comes up until it turns to be difficult and then they turn to a commission to solve the problem for 'em.'"

Party Differences Highlight Dilemma

said is her propensity to obfuscate.

At various public forums, Clinton has repeatedly rejected raising taxes to help make up the Social Security shortfall, though last month at a town hall in Maquoketa, Iowa, an Associated Press reporter overheard Clinton telling local teacher Tod Bowman that she would consider raising the cap on the 12.4 percent Social Security tax, applying it to income above $200,000.

Obama later secured the endorsement of Bowman.

"A candidate for president owes it to the American people to tell us where they stand," Obama said. "Because you're not ready to lead if you can't tell us where you're going."

"She's not alone in avoiding answering this question directly -- she's not alone in ducking the issue," Obama continued. "Because conventional thinking in Washington says ... you should hedge, and dodge and spin, but at all costs, don't answer."

Thompson said Friday he was ready for the voters to hear the truth about Social Security.

But just because Obama and Thompson are in this rare fraternity of politicians willing to speak somewhat honestly about this crisis, do not expect them to refrain from avoiding demagoguery themselves. Obama said Friday evening that "Sen.Thompson's plan would seriously undermine" a "fundamental promise to seniors." He characterized Thompson as wanting to "slash benefits" and described his own rather sizable tax increase as "simply ask[ing] higher income Americans to contribute a little more."

"I have a novel theory, and that is, the American people understand more than what we give them credit for," he said.

Christine Byun and Teddy Davis contributed to this report.