Bush Ally in House Alters Social Security Debate Strategy

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."