NEW YORK (CNN/Money) – Key House Republicans will introduce a Social Security reform bill this week that would give workers under 55 the option of creating individual investment accounts using money that would otherwise go towards the Social Security surplus.
It is a different proposal than that of President Bush, who wants to let workers divert up to four percentage points of their Social Security taxes into individual investment accounts.
The plan does not address the issue of solvency – it makes no suggestions about how benefits might need to change to make up for Social Security's long-term shortfall. But the Republicans responsible for the legislation said it's a "first step" in Social Security reform at a press conference on Wednesday.
They included four members of the House Subcommittee on Social Security: chairman Jim McCrery (R-La.), Sam Johnson (R-Texas), E. Clay Shaw Jr. (R-Fla.) and Paul Ryan (R-Wisc.).
Also present were John Shadegg (R-Arizona), chairman of the House Republican Policy Committee, and senators Jim DeMint and John Sununu (R-N.H.), who are proposing a similar bill in the Senate.
The Republican congressmen asserted that their plan addresses a common complaint by workers and seniors that Social Security taxes should be earmarked for retirement programs and not spent by the government on other things.
The system has for years been taking in more than it has had to pay out, creating a surplus of funds that have been lent to the Treasury's general fund and hence, spent on other things.
In exchange for the loan, the Treasury issues special, non-marketable bonds to Social Security, which the system can redeem when it starts to take in less in payroll taxes than it has to pay out.
Under the bill to be proposed this week, the amount of a worker's payroll taxes that would otherwise go toward the surplus starting in 2006 would instead be used to buy marketable Treasury bonds in the worker's name.
The proposal would increase the government's Social Security debt – the Treasury bonds you buy with the surplus money represent a debt of the government. But very preliminary estimates indicate that it would not increase the system's long-term deficit, since the benefits the system would pay out to retired workers with accounts would be offset by a formula tied to the amount in the account.
Under the plan, contributions to accounts would cease when the system stops taking in a surplus, which would be in 2017 according to estimates from Social Security actuaries.
But the bill calls for a board in 2009 to make recommendations for how money in the accounts could be invested by workers thereafter.
Response to the plan
House Ways and Means Committee Chairman Bill Thomas (R-Calif.) called the plan a "commonsense approach" and said in a statement he is likely to include it in the retirement security bill he is developing.
But opponents of individual investment accounts were not cheering.
"This is privatization, plain and simple," said Rep. Sander Levin (D-Mich.), another member of the Subcommittee on Social Security, in a statement.
"The plan outlined today is riddled with uncertainty for everyone: for those who are counting on a guaranteed benefit it would bring uncertainty by making Social Security's shortfall worse; for those who might hold a private account, it would bring uncertainty about how the accounts would be funded after the surplus is exhausted," Levin said.
Faced with stiff opposition to his accounts proposal, President Bush this week has shown some flexibility on the issue.
On Tuesday, for instance, he told Sen. Bob Bennett (R-Utah) to feel free to introduce a reform plan that does not include accounts but which addresses the solvency of the system by reducing the growth in benefits for middle- and high-income earners.