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House Republicans propose scaled-down Social Security plan

WASHINGTON—With prospects dim for a broad Social Security overhaul, House Republicans proposed Wednesday to create personal accounts that would stop short of President Bush's quest for larger permanent accounts.

The plan would use surplus Social Security taxes to finance private investment accounts for as long as the system collects more in taxes than it pays out for benefits. The system's actuaries say it will run a surplus until 2017.

The House Republicans didn't propose anything that would solve Social Security's long-term solvency problems. Their proposal, unveiled at a hastily called news conference and quickly endorsed by House Republican leaders, essentially aimed to kick the thorny political question of how to fix Social Security to a more-distant time and place.

Passed alone, it could be a steppingstone to more-sweeping change by future Congresses.

Or it could build momentum in coming weeks for House Ways and Means Committee Chairman Rep. Bill Thomas, R-Calif., as he tries to piece together broad retirement-security legislation that would overhaul Social Security, private pensions and tax-sheltered savings in one fell swoop.

Or the House of Representatives might approve a scaled-down private-accounts plan as the first step toward building broader legislation in a Republican-only conference committee of House and Senate negotiators later this year.

Or, of course, it could fail, a victim of the broad public rejection so far of any plan to tinker with Social Security, as many polls find.

"It is a gimmick, a vehicle to keep alive a plan that has fallen flat with the American public," said Brad Woodhouse, a spokesman for Americans United to Protect Social Security, a coalition of groups that oppose Republican plans to change the system. "They are searching for any vehicle, any bill, anything that can keep their hopes to privatize Social Security alive."

Rep. John Shadegg, R-Ariz., one of the sponsors, called it a first, small step toward personally managed Social Security accounts. He conceded that the proposal doesn't address the program's financial woes.

"It's our hope that by 2017, Congress will come back and solve the solvency problem," Shadegg said in an interview. "It buys us some time to go after that."

Rep. Jim McCrery, R-La., chairman of the Ways and Means subcommittee on Social Security, said the amount of money in each account would average about 2 percent of a person's first $90,000 in salary. Bush wants to allow people to divert twice that much from their Social Security taxes into personal accounts.

Under the new proposal, the money would be managed by the government and invested only in U.S. Treasury bonds until 2009. Then a board would recommend a list of other investment options that people could choose. Money in the accounts could be left to heirs.

McCrery and other sponsors stressed that the accounts would ensure that all Social Security taxes are used for Social Security. Currently, surplus payroll revenues totaling about $100 billion a year are lent to the government and spent on other federal programs.

The proposal would "stop the raid on the surplus," said Rep. Clay Shaw, R-Fla., a co-sponsor. "When the money is put into a personal account, it can't be spent by the federal government," said Sen. John Sununu, R-N.H.

However, McCrery contradicted them, conceding that the surplus money still would be spent on other purposes, which suggests the accounts would have to be financed with debt.

"The surplus, the cash can still be used the way it is now," McCrery said.

Democrats denounced the proposal.

Rep. Charles B. Rangel, D-N.Y., the ranking Democrat on the House Ways and Means Committee, said: "Their plan would raid the Social Security Trust Fund in order to fund their private accounts. That's privatization! Private accounts are not Social Security."

Rep. Nancy Pelosi, D-Calif., the House Democratic leader, condemned the proposal as a watered-down version of Bush's.

"The only difference is cosmetic," she said.

Robert Greenstein, the executive director of the Center on Budget and Policy Priorities, a liberal research center, said the plan would worsen Social Security's solvency problems, federal deficits and the national debt unless other federal spending were cut to offset the diverted wage-tax revenue. He also said it would require hiring thousands of federal employees to administer the new accounts.

Jason Furman, a senior fellow at Greenstein's center, said the accounts would shrink each year as the surplus declines, so that by 2016 an average worker's account would get just $40.


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For a critical analysis, go to


(c) 2005, Knight Ridder/Tribune Information Services.

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