Key Republican members of the House Ways and Means Committee offered a plan yesterday to create personal retirement accounts from surplus payroll taxes, as one Senate Republican crafted his own bill to take those accounts off the table.
With the blessing of Chairman Bill Thomas (R-Calif.), Social Security Subcommittee Chairman Jim McCrery (R-La.) and Reps. Paul Ryan (Wis.) and Clay Shaw (Fla.), all of whom offered their own reform bills earlier this year, introduced a substitute measure to prevent the federal government from spending surplus payroll taxes that are paid into the system.
They unveiled their proposal at a press conference, where they were joined by Reps. Sam Johnson (R-Texas) and John Shadegg (R-Ariz.) and Sens. John Sununu (R-N.H.) and Jim DeMint (R-S.C.), who is scheduled to offer a similar proposal today.
Their plan, Growing Real Ownership for Workers (GROW), creates personal retirement accounts from those surplus payroll taxes at a time when congressional Republicans had asked President Bush to reconsider his drive to create the accounts as part of a system overhaul.
The announcement came one day after Sen. Robert Bennett (R-Utah), a strong backer of personal retirement accounts, told Bush during a meeting of GOP senators at the White House that he is planning to introduce a new reform bill to achieve long-term solvency without the savings accounts.
The House bill, which does not address the solvency issue, has early support from Thomas and the GOP leadership, but everyone involved in the rollout said this is the first legislative step in the overall reform debate, with more legislation to come.
Thomas did not attend the press conference because he was en route to Texas to attend the funeral of former Rep. J.J. Pickle (D-Texas), who once chaired the Ways and Means Subcommittee on Social Security. In Thomas’s absence, McCrery said the introduction of this bill was just the first step in their process to revamp the “three legs” of retirement security — the other two being pensions and personal investments.
In a statement from his office, Thomas said, “This proposal will likely form the basis for one of the components of a developing retirement-security package.”
House Majority Leader Tom DeLay (R-Texas) called the proposed bill “a positive first step toward ensuring workers and families have the power to invest in their own future.”
Senate Finance Committee Chairman Chuck Grassley (R-Iowa) offered his own tepid support after the press conference.
“I want to pass legislation that makes Social Security solvent, along with personal accounts if possible, and that obviously goes further than this legislation does,” Grassley said in a statement put out by his office. “But I welcome any member of Congress who wants to introduce Social Security legislation to do so. The more members we get involved in this debate, the better. More involvement helps move the ball up the hill.”
The House leadership backed the bill, but in laying out a possible timeline for passage one senior leadership aide said that Ways and Means would first have to address the Central America Free Trade Agreement (CAFTA).
“This is part of an overall retirement-security package,” the aide said. “We expect the members to talk about it during the July 4 break. Then we’ll see what its prospects for passage are after the Fourth of July recess.”
Rep. Jim Kolbe (R-Ariz.) applauded the step but was quick to remind his colleagues that more work is needed to bring the system back into solvency.
“This proposal is a step in the right direction,” said Kolbe, who has introduced his own bipartisan proposal with Rep. Allen Boyd (D-Fla.). “However, you must eat your spinach before having dessert, and this plan only offers dessert — the personal retirement accounts.”
Democrats were quick to dismiss the plan.
“This is privatization, plain and simple,” said Rep. Sander Levin (D-Mich.). “Just like President Bush’s plan, this proposal would take money from Social Security to set up private accounts.”
Rep. Charles Rangel (D-N.Y.), the ranking member of Ways and Means, said in a statement, “They claim that their proposal would use Social Security trust-fund money for Social Security. But their plan would raid the Social Security trust fund in order to fund their private accounts.”
The three Ways and Means members have been working on the rollout with Thomas only since last week. The press conference itself was hurried and cut short so that members could vote on an amendment to prevent desecration of the flag.
The plan, as it was described, would rebate each worker’s surplus Social Security taxes in the form of marketable treasury bonds, creating, in effect, a risk-free personal retirement account for each worker that would grow at the same annual rate of return — 1.8 percent — as the current Social Security system.
The rebates would activate in the first year of passage, and the plan would not touch money currently invested in the Social Security trust fund.
The change would cap a significant source of federal income. That has the potential to increase overall government borrowing, but McCrery argued yesterday that the change would not change the deficit number because the money was already allocated to future benefits in the Social Security system.
Conservatives quickly embraced the new plan, even though it would create much smaller personal retirement accounts than they initially sought. Conservatives in the House had embraced Ryan’s plan to divert 6 percent of income subject to Social Security taxes to fund private accounts.
“Whenever I talk to people in Arizona about Social Security, they tell me Congress needs to stop stealing he Social Security surplus,” said Shadegg, chairman of the Republican Policy Committee. “This bill does just that. It makes sure Social Security taxes are used to pay for Social Security.”
Ron Bonjean, spokesman for House Speaker Dennis Hastert (R-Ill.), said, “This is a good start to solve the Social Security problem.”