New funding idea floated for private Social Security accounts

Senator proposes using trust fund's yearly surplus

June 19, 2005|By Joel Havemann and Richard Simon | Joel Havemann and Richard Simon,LOS ANGLES TIMES

WASHINGTON - 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 says it's 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 surpluses under the new plan. 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 nearly $1,200 under the new plan. But the annual surplus is expected to turn into a deficit in 2017 as the baby boom generation shifts from being payroll taxpayers to Social Security beneficiaries.

And the new proposal would do nothing to head off Social Security's insolvency in 2041, when the trust fund is projected to run dry and payroll taxes would be enough to support only 74 percent 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 both were important goals. He declined to say whether Bush would be willing to sign legislation that addressed only one or the other.

The proposal originated with Sen. Jim DeMint, a South Carolina Republican, who said he hoped to introduce a formal bill on Tuesday.

"It's premature to write off personal accounts as dead," said Rep. Paul Ryan, a Wisconsin Republican and leading sponsor of the new approach in the House.

But the DeMint bill attracted no apparent support from Democrats, who have been all but unanimous in their opposition to individual investment accounts. Rep. Sander Levin of Michigan, the top-ranking Democrat on the House Ways and Means subcommittee on Social Security, said Republicans were "scrambling."

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

Ways and Means Chairman Bill Thomas, a California Republican and the pivotal figure in the House on Social Security, did not take a position on the DeMint bill.

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

Thomas' counterpart in the Senate, Finance Committee Chairman Charles E. Grassley, an Iowa Republican, said he welcomed DeMint's bill.

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

Grassley said that, with or without individual accounts, his committee would send a bill to the Senate floor by early July, and the full Senate would decide whether there should be individual accounts.

DeMint's plan would tap voter disapproval of the use of surplus Social Security payroll taxes, which has in effect been to 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.

Los Angeles Times is a Tribune Publishing newspaper.

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