House GOP Offers Plan to Ease Social Security Burden

Key House Republicans proposed Wednesday to give every worker money to invest in stocks and bonds for retirement to ease the future financial pressures on the Social Security system.

If the investments do poorly, workers would still be guaranteed the full benefits promised them under the current Social Security system.

The proposal is a response to President Clinton’s plan for extending the life of the Social Security system. The complex Clinton proposal also uses budget surpluses, government investment in the market and some personal accounts to help finance Social Security when the baby boom generation moves into retirement.

In a preview of election-year rhetoric, congressional Democrats immediately attacked the GOP plan, dimming the chances for a bipartisan deal this year on Social Security.

Under the GOP proposal, every worker gets a personal retirement account that each year would receive a contribution equal to 2% of a worker’s salary, up to the maximum Social Security wage base of $72,600 a year. Social Security taxes are levied at 6.2% up to that base, with a worker and a worker’s employer each contributing equal amounts for a total of 12.4%.

Under the 2% formula, therefore, a worker earning $50,000 a year would receive $1,000 in the new account. The $1,000 would come not from the Social Security taxes but from the federal budget surplus.

Workers would invest their accounts in stocks (60%) and bonds (40%) offered by private companies but approved by the government for their fiscal soundness. Investment choices could be changed annually, and workers could not tap into their accounts until they reached retirement age or were disabled.

Current levels of Social Security payments would be guaranteed for the future. At retirement, the worker would receive either regular Social Security benefits or a monthly payment from the money accumulated in the 2% retirement account, whichever was larger.

Money to create the 2% accounts would come from future budget surpluses and would cost about $1.8 trillion over 10 years, according to the plan’s authors, Rep. Bill Archer (R-Texas), chairman of the Ways and Means Committee, and Rep. Clay Shaw (R-Fla.), head of the Social Security subcommittee.

The proposal, called the Social Security Guarantee Plan, protects benefits “for those already retired, for those about to retire and for all generations to come,” said Archer.

Backers of the proposal say it would reduce the demands on the Social Security system by making more money available to retirees from their private investment accounts. They expect the stock investments to grow at a faster rate than Social Security funds, which now are invested in government bonds. Therefore, they say, less money would be needed from Social Security payroll taxes to pay retirement benefits.

Under the current system, Social Security will only be able to pay 75% of promised benefits in 2034, when all the baby boomers will have reached retirement age.

But Rep. Robert T. Matsui of Sacramento, the Democratic leader on Social Security issues, said he was disappointed with the GOP plan. “This document is specious . . . there is no weight to it,” he said. He challenged the Republicans to “come to us” for serious negotiations.

With the president and Congress preoccupied with Kosovo, and the election campaigns drawing near, the opportunities for major legislative action on Social Security this year are dwindling.

House Majority Whip Tom DeLay (R-Texas) and other GOP leaders last week warned Archer and Shaw of the political risks of taking the lead on Social Security reform and the expensive campaign that would be needed to lay the groundwork.

“This is a dead bang loser, politically,” said one GOP strategist.

House Speaker J. Dennis Hastert (R-Ill.) said only that he would take a close look at the Archer-Shaw plan, along with “all Social Security reform proposals in the 106th Congress.”

Social Security is the biggest and most successful of all government programs, with 44 million people drawing monthly retirement benefits.

In a news conference Tuesday, House Majority Leader Dick Armey (R-Texas) made plain he did not want Republicans to take the risks of pushing for Social Security changes.

“We understand that there is a great public policy responsibility and opportunity to do something for all generations of Americans, but we also understand that it is particularly necessary in this case that this president take a lead on it because his party has had such a sordid history of blatant, shameless political demagoguery on this subject,” Armey said.

“I would love to see the president rise above the history of his party’s politics on Social Security,” he said.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Comparing the 2 Plans

Republicans

Provides $1.8 trillion in general tax revenue over 10 years to shore up Social Security.

Gives workers 2% of their salaries to invest in stocks and bonds.

Gives workers 2% of their salaries to invest in stocks and bonds.

Retirees receive pensions from their retirement accounts or Social Security, whichever is larger.

Clinton

Provides $2.8 trillion over 15 years.

Gives workers up to $350 a year to invest as they choose.

Retirees receive traditional Social Security, plus whatever is in their investment.

Source: Times Washington Bureau