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Bush Ally in House Alters Social Security Debate Strategy

By Jonathan Weisman and Jeffrey H. Birnbaum
Washington Post Staff Writers
Thursday, May 5, 2005; Page A05

With President Bush's top domestic priority fading fast, Republicans once again have turned to one of their least liked but most effective colleagues: Rep. Bill Thomas, chairman of the House Ways and Means Committee.

The California Republican saved President Bush's tax cut in 2003, has never lost a vote on the floor and, despite resistance among other House GOP leaders, is poised once again to try to revive the president's proposal to add personal investment accounts to Social Security.

Ways and Means Chairman Bill Thomas.

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Social Security

Thomas's aggressive grab for control of Social Security legislation marks a major shift in legislative strategy. The White House and House leaders had wanted the Senate Finance Committee to craft legislation first -- a narrow bill based largely on the president's proposal. Bush aides had figured that the Finance panel would have more luck attracting bipartisan support while House leaders did not want to force their rank and file to vote on a measure that had no chance of Senate passage.

But Thomas, a mercurial lawmaker and former college professor who relishes a challenge, "wants to get in the game," whether or not the GOP leadership wants him to, said one corporate lobbyist with close ties to House leaders. A Republican leadership aide said House leaders were caught by surprise Friday when Thomas announced he would draft legislation in early June that would enlarge the bill considerably to include a grab bag of popular retirement savings provisions and tax incentives. But those who have worked with the chairman were not so surprised.

"Thomas does seem to get all sides mad," said Dan Danner, the top lobbyist for the National Federation of Independent Business. "But at the end of the day, he gets something through. He delivers."

"If anybody can come up with a proposal that could pass both houses of Congress and solve the problem, it's Bill Thomas," agreed David C. John, a Social Security analyst at the conservative Heritage Foundation and a White House ally.

Thomas opted for his approach because he believes Congress should address broader issues confronting an aging society, and because only a bill adorned with long-sought sweeteners can attract enough support to reach the president's desk.

His maneuver has undercut White House and House hopes that Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) would assume the pivotal role in drafting changes to the Social Security program and has ignited a lobbying frenzy.

Life insurers are determined to prevent the legislation from being so generous with its savings incentives that it reduces the market for life-insurance products. Airlines want Thomas's measure to include pension-law changes that would make it easier for them and other troubled industries to get out from under huge retirement responsibilities from their former employees. And retailers are busy making sure that a sales or value-added tax is not part of the section in Thomas's legislation that pays for the Social Security and savings incentive sections.

"The good news is the battle has begun; reform is in play," said Dirk Van Dongen, president of the National Association of Wholesaler-Distributors, a supporter of Bush's personal accounts plan. "Now you have to watch out for the 'be-careful-what-you-wish-for' rule. At the end of the day, we want a package that has private accounts but doesn't increase taxes."

Observers agree that Thomas will include popular, bipartisan pension measures in his bill from the House Education and the Workforce Committee that are designed to bolster traditional corporate pensions without imposing tough new funding requirements. The measures are advocated by large corporate -- and therefore Republican -- interests, especially airlines and automakers. The provisions are also seen as vital to labor unions and their Democratic allies.

Thomas has also been negotiating with insurance companies on provisions, initially written by Ways and Means member Nancy L. Johnson (R-Conn.), that would provide new tax breaks for long-term health care insurance. The provisions would allow the end-of-year balances in corporate flexible spending accounts to be rolled over each year and to accumulate over time to finance chronic health problems of the elderly.

In addition, the bill is likely to include a huge expansion of individual retirement accounts and 401(k) plans. House aides are eyeing a plan to make 2001 expansions of these savings incentives permanent and to increase the annual contribution limits further, to $10,000 for IRAs and $20,000 for 401(k)s. Tax deductibility of IRA contributions might also be expanded. For low-income workers without savings to contribute, refunds from the earned-income tax credit would be used for the IRAs.

If political support does not improve for the president's personal accounts, congressional aides and lobbyists said that these savings vehicles could be offered instead. Thomas's bill also would probably include permanent extensions of the 2003 cut in tax rates on dividends and capital gains.

"There's nothing you're telling me about that would make me say we can't talk," said Rep. Benjamin L. Cardin (Md.), a Ways and Means Democrat who was author of many of the pension and savings provisions Thomas is examining.

Indeed, the committee could ultimately report out a bill that relegates Social Security changes to a relatively insignificant place.

But for all the attractions of Thomas's moves, each will have its detractors and complications. "It certainly is ambitious," said Rep. E. Clay Shaw Jr. (R-Fla.), a senior committee member. "I just don't know how you get all these things married together and still get a bill. It's huge."

Lobbyists are worrying most about two tax increases that could be part of Thomas's effort, both of which could alienate vital corporate support.

The first would be an increase in the level at which the payroll taxes for Social Security now phase out. Currently, income exceeding $90,000 a year is not subject to the payroll tax. One option being floated would increase that cap, a change that would boost the tax bills of individuals and their employers.

A second possible tax increase would be to reduce or eliminate the exclusion from taxes of employer provided health-care benefits. One version of this proposal would be costly to companies; another would fall mostly on employees.

"Imposing new financial burdens on employers is not something we'd support," warned Dorothy Coleman, a vice president of the National Association of Manufacturers. "We're watching where the whole thing goes."

At the moment, House leaders are tolerating Thomas's surprise decision to move ahead. Then again, Thomas's independence is nothing new. In 2003, he ditched Bush's complex proposal to end the double taxation of corporate dividends for a far simpler plan to lower tax rates on dividends and capital gains to 15 percent. The Senate sided with the White House and its proposal, but Thomas ultimately prevailed.

"I have worked closely with Chairman Thomas on a lot of crucial issues," Bush said yesterday. "When he says he can get the job done, he means he can get the job done and has proven over the past five years that he can get the job done."

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