House GOP Offers Plan For Social Security

After a holding period, holdings could be diversified into other options such as stocks, based on a plan to be submitted to Congress by an administrative board that would manage the accounts. The balance of the accounts, plus interest, would eventually be subtracted from a retiree's traditional Social Security benefit. The system, as proposed, would operate only as long as Social Security ran a cash surplus -- or just more than a decade. The accounts would remain, and they could be inherited.

A nearly identical bill will be introduced in the Senate today. Republican strategists said the new plan is a way to pressure Democrats to negotiate, and to portray movement. The idea was embraced as a palatable step by House leaders, most of whom have been jittery about pursuing a restructuring of Social Security as they head into midterm elections that Republicans believe may be the toughest the party has faced in 10 years.

"We just simply take the surplus that's coming into the Social Security trust fund now, and we convert it to Treasury bills for all the American workers," said Rep. E. Clay Shaw Jr. (R-Fla.), senior member of the Ways and Means Committee.

But critics say there is not enough money to make the plan viable. About 130 million Americans who pay into Social Security and are under 55 would be entitled to personal accounts. Excluding interest owed on borrowed Social Security funds, the cash surplus from Social Security taxes this year will leave enough for an average of $434 available for each account.

The Social Security Administration projects that, at its height in 2008, the cash surplus will reach $97 billion, an amount that about 165 million workers would have to share, leaving an average of $588 each. But that cash surplus would decline rapidly to zero after a decade. By 2016, all that would remain is $40 per account.

"You'd launch a proposal without any means of perpetuating the funding," said Robert L. Bixby, executive director of the Concord Coalition, a budget watchdog group.

House Republicans said the plan would extend solvency from 2041 to 2043 because the amount in the accounts would reduce the trust fund's obligation, according to a preliminary analysis by the Social Security Administration.

If the size of the accounts would be small, the cost to the government would not, said Jason Furman, an economist at the liberal Center on Budget and Policy Priorities. The proposal would add $600 billion to the federal debt over the next decade, assuming that two-thirds of eligible workers take accounts. The plan would not cut benefits, and the cost to taxpayers of administering minuscule accounts could be huge.

Furman said the plan would push the program to insolvency two years faster than doing nothing, because of administrative costs and the amount that was inherited.

"This is the worst of all worlds," he said. "It has all the problems of any private accounts proposal with none of the benefits for solvency."