Surplus Floated to Fund Social Security Accounts

Congress’ most enthusiastic supporters of individual Social Security accounts have hit upon a formula that they hope will keep the foundering idea alive, and the White House said Friday it was willing to take a look.

The accounts, which could be invested in stocks or bonds, would be financed with the Social Security trust fund’s annual surplus. President Bush, by contrast, has proposed funding individual accounts with money diverted from each worker’s payroll taxes.

The surplus is expected to reach $163 billion this year, enough to provide workers with accounts averaging about $1,200.

But the annual surplus is expected to turn into a deficit in 2017 as members of the baby boom generation shift from being payroll taxpayers to Social Security beneficiaries.

And the new proposal would do nothing to head off Social Security’s expected insolvency. The trust fund is projected to run low in 2041, with enough payroll taxes to support 74% of promised benefits.

White House spokesman Trent Duffy said the new approach “is worth taking a look at. It does have a healthy personal-account feature. But the president also wants to address the underlying solvency problem.”

White House Press Secretary Scott McClellan, traveling to an event in Minnesota with Bush, said that authorizing individual accounts and ensuring Social Security’s solvency were both important goals.

He declined to say whether Bush would be willing to sign legislation that addressed only one or the other.

The new proposal originated with Sen. Jim DeMint (R-S.C.), who said he hoped to introduce a formal bill Tuesday.

“It’s premature to write off personal accounts as dead,” said Rep. Paul Ryan (R-Wis.), a leading sponsor of the new approach in the House.

The DeMint bill attracted no apparent support from Democrats, who have been all but unanimous in their opposition to individual investment accounts.

Republicans are “scrambling,” said Sander M. Levin of Michigan, the top-ranking Democrat on the House Ways and Means subcommittee on Social Security.

“The Bush privatization of Social Security is still unacceptable to the American public. You can dress up the body in new clothes, but the body stays the same.”

Ways and Means Chairman Bill Thomas (R-Bakersfield), the pivotal figure in the House on Social Security, did not take a position on the DeMint bill.

Thomas has been talking about making legislation more complicated, not simpler, by folding Bush’s individual accounts into a broad pension and tax overhaul bill. Some saw it as a sign of disapproval of Thomas’ approach when the White House on Thursday gave its tax-overhaul commission until Sept. 30 to file its report -- even though the commission had said it could meet its original July 31 deadline.

Thomas’ counterpart in the Senate, Finance Committee Chairman Charles E. Grassley (R-Iowa), said he welcomed DeMint’s bill.

“The only negative about it is that it doesn’t solve the Social Security solvency problem,” Grassley said. “But it breaks the ice on personal accounts.”

Still, the new approach may not help Grassley, whose 20-member committee lacks a majority for individual accounts. All nine Democrats oppose them, as does Republican Sen. Olympia J. Snowe of Maine, leaving Grassley with, at best, a 10-10 split.

With or without individual accounts, Grassley said, his committee will send a bill to the Senate floor in July, and the full Senate will decide whether there should be individual accounts.

Sen. Robert F. Bennett (R-Utah) plans to introduce two bills as early as next week, one to shore up Social Security’s finances, the other to establish personal accounts.

DeMint’s plan would tap voter disapproval of the use of surplus Social Security payroll taxes to, in effect, pay for other government programs. By law, the Social Security trust fund, which is fed by annual surpluses, must invest in government bonds, the proceeds of which help cover the government’s operating expenses.

Unlike Bush’s plan, which would divert some payroll taxes away from their current use -- paying the Social Security benefits of current retirees -- DeMint’s would feed individual Social Security accounts by using Social Security’s annual surpluses.

Bush would borrow from general government revenue to plug the hole left by the money that would be used to feed the individual accounts.

DeMint would not borrow, at least not directly. But he would hasten Social Security’s projected insolvency date of 2041 by several years, because he would use the estimated $2.5 trillion in surpluses that would otherwise collect in the trust fund through 2017, on top of the $1.7 trillion already there at the end of last year.

Democrats said that DeMint’s approach, unless offset by spending cuts, also would force the government to turn to other sources of borrowing for the billions of dollars a year that it now received from the Social Security trust fund.

DeMint said that all workers born after 1950 could choose to have an investment account. And as there would be no cost to establish an account, he predicted that most would.

He also predicted that the individual accounts would prove so popular that the government would figure out some way to keep them growing after 2017.

DeMint acknowledged that his plan would do nothing to shore up the retirement system’s solvency. “This is just the first step to break the logjam,” DeMint said.

John B. Shadegg of Arizona, who ranks fifth in the House Republican leadership and plans to co-sponsor DeMint’s bill, said it had the virtue of addressing voters’ frequent demand that Congress “quit stealing our Social Security taxes” to fund other programs.

“There’s lots of public agreement that Social Security taxes should be used for Social Security benefits,” said Sen. Lindsey Graham (R-S.C.), who has long sought a bipartisan approach to Social Security’s financial woes. “This is a good, common-sense start to what will apparently be a long debate about solvency.”

Times staff writer Warren Vieth contributed to this report.