Who Is NOW The Enemy Of The Seniors -- AARP Says "Don't Touch Medicare!"

Early next month, AARP's board will meet to decide whether to endorse a package of such changes, to close a Social Security financing gap that will open as the huge baby boom population starts retiring after 2008. Several recommendations are likely, based on the response of seniors who have been surveyed by AARP in the past year.

• Investing part of Social Security's current surpluses in stocks and bonds to earn higher returns than Treasury bonds offer, much as former President Clinton suggested.
 
• Requiring new workers for state and local governments to participate in Social Security, bringing new payroll taxes into the program.
 
• Gradually raising the ceiling on workers' annual wages subject to the 12.4% Social Security payroll taxes to about $140,000 from this year's $90,000. The program was designed so taxes would apply to 90% of all wages. Now, though, the share of overall national wages subject to Social Security payroll taxes has slipped to 84%, reflecting an increase in top earners' incomes relative to the rest of the population's. (All income is subject to the smaller Medicare payroll tax.)
 

The proposal to lift the cap on taxable wages is "the No. 1 preference -- probably the only preference that's actually popular with the American public," says John Rother, AARP director of strategy and policy. Together, the three steps would make up more than half of the projected shortfall between Social Security revenue coming in and benefits going out for the next 75 years, AARP figures. To completely close the gap, Mr. Rother plans to outline other cost-saving steps to AARP's board, including new limits on benefits for high-income seniors.

Whatever the board decides, the AARP plan isn't likely to come out before Mr. Bush's proposal. "We would want to see the president's plan beforehand," Mr. Rother says. The White House has said the president will propose a blueprint in February. For now, the administration is waiting to see if a small, bipartisan group of senators can find any common ground in private meetings.

The senators' biggest obstacle -- in no small part as a result of AARP opposition -- is Mr. Bush's nonnegotiable demand that any compromise include private accounts. At this month's initial meeting of the three Republican and four Democratic senators, Montana's Max Baucus, the top Democrat on the Finance Committee that oversees Social Security, made clear that few if any Democrats would support allowing workers to divert payroll taxes to private accounts, according to a participant. Republicans have problems with the idea as well, said South Carolina Sen. Lindsey Graham, the meeting's Republican host, given the Bush administration's talk of covering the estimated $2 trillion in transition costs for the first 10 years with government borrowing.

AARP's shadow also loomed over a gathering last month, where Republican congressional leaders and administration officials discussed the 2005 agenda. Participants say both House Majority Leader Tom DeLay of Texas and Senate Republican Conference Chairman Rick Santorum of Pennsylvania told White House representatives that congressional Republicans don't want to take on the politically hazardous Social Security issue if Mr. Bush can't enlist bipartisan support. And, Mr. Santorum added, with AARP opposing private accounts, how could Democrats ever be brought along?

In part to counter AARP's influence, the president and his conservative backers are playing heavily to younger voters, and at the same time stressing that today's retirees and those nearing retirement won't see any change in promised benefits. As the politicians know, seniors generally vote in greater numbers and are more motivated by the Social Security question than younger voters.

Michael Tanner of the libertarian Cato Institute think tank, an ally in the White House's push for private-accounts legislation, says there will be "a major effort to get that message out -- that retirees have nothing to lose." But, he adds, "certainly it doesn't help to have the AARP carrying the opposing message. There's a lot of Republicans on Capitol Hill who are afraid of their own shadow right now. The House leadership would really rather this went away."

At the same time, the administration's appeal to younger voters has put AARP a bit on the defensive, and the group is striving to suggest that it isn't supporting its senior-citizen ranks at the expense of future generations -- and potential members. On Monday, the group will release a poll that shows two-thirds of Americans age 30 and older want to preserve the current system as long as it can be made financially stable. In a recent letter to members, AARP President Marie Smith and Chief Executive Bill Novelli wrote that allowing workers to divert taxes to personal accounts "would weaken Social Security and put benefits for future generations at risk."

Meanwhile, the organization continues to sponsor community forums nationwide in which attendees give their preferences on options for cutting Social Security costs. AARP conducted 56 sessions nationwide in the past year, from Fargo, N.D., to Las Vegas and Caribou, Maine. "It's remarkable to see how, in most cases, it's been pretty smooth," Mr. Rother says. "They see you're not going to be able to protect Social Security exactly as it is."

Write to Jackie Calmes at jackie.calmes@wsj.com¹