Gingrich Offers New Social Security Plan

Stepping up the debate over Social Security’s future, House Speaker Newt Gingrich (R-Ga.) proposed Wednesday that federal budget surpluses be divided among all American workers and deposited directly into new personal retirement accounts.

The average worker might receive $3,500 or $4,000 over the next decade as a share of the federal government’s emerging surplus, Gingrich predicted in testimony before the House Ways and Means Committee.

The “Social Security Plus” account is the Republican political response to President Clinton’s call to “save Social Security first.”

Clinton has urged Congress to hold on to the surpluses--rather than cut taxes or increase spending--until it decides what to do about the future of Social Security. He wants a year of debate followed by a White House conference in December and a bipartisan deal next year.

The Gingrich proposal, by contrast, spreads the projected budget surpluses among workers, who would be free to invest their accounts as they saw fit for their own retirements.

The system could be a publicly funded version of private 401(k) retirement plans, with workers selecting from a limited menu of investment choices, Republican sources said.

The new accounts would be separate from the current Social Security program, a pay-as-you-go system in which today’s workers support today’s retirees. “So even if a person makes a terrible investment or the stock market goes into a dive, that person will always have Social Security to fall back on,” Gingrich told the committee.

However, he acknowledged that the proposed new accounts would not solve Social Security’s long-term financing problem. The system is expected to come under financial pressure as the enormous baby boom generation reaches retirement age beginning in 2012. In 2029, according to current projections, Social Security will collect enough in taxes to pay only 75% of the benefits promised by current law.

To discuss ways to handle the 25% gap, key House Republicans have proposed creation of a National Dialogue Council with 36 members divided to represent the generations: retirees, baby boomers and younger workers. The dialogue would end Jan. 1, giving way to a congressional panel responsible for legislation to assure Social Security’s solvency.

Before his committee appearance, Gingrich exhorted House Republicans to make Social Security a top issue when they return to their districts for the spring recess, which begins Friday.

Gingrich is positioning his party to make the case for private accounts for millions of Americans who have enjoyed benefits from the booming stock market and from increasingly popular salary set-aside plans, including 401(k) programs.

His proposal drew quick rebuttal from the White House, where spokesman Barry Toiv said that comprehensive Social Security reform should come before any big new programs are enacted.

“We don’t think we ought to spend it for tax cuts or for anything else. All ideas ought to be considered as part of the process. If anybody is talking about taking the surplus ahead of time, we would oppose it,” he said.

Democrats on the Ways and Means Committee attacked the Republican plan. Rep. Pete Stark (D-Oakland) said that the individual account proposed by Gingrich would be relatively insignificant for most workers.

Instead, he said, Social Security’s long-term financing gap could be closed with an increase of 1 percentage point in the payroll tax paid by workers and another 1 percentage point in the tax paid by employers. The tax is now 6.2% each on workers and employers, levied on the first $68,400 in annual earnings.

Gingrich retorted: “That illustrates the difference between our parties--I favor a non-tax solution.”

Rep. Sander M. Levin (D-Mich.) said that the Republican plan for the “dialogue council” “overlaps or competes with a process already begun,” referring to the president’s call for a year of discussion.

The Republican plan was introduced by Ways and Means Committee Chairman Bill Archer (R-Texas); Jim Bunning (R-Ky.), chairman of the Social Security subcommittee; and John R. Kasich (R-Ohio), chairman of the House Budget Committee.