Republicans to Outline Retirement Proposal
Washington Post Staff Writer
Wednesday, April 28, 1999; Page A4
In the face of warnings by House and Senate GOP leaders that any reform of Social Security will not pass this year, the chairman of the House Ways and Means Committee is pressing forward with a major proposal today that would create personal retirement accounts for every working American.
Under the proposal, the first Republican plan to emerge this year for revamping the nation's retirement system, all workers would be given tax credits each year amounting to 2 percent of their income. They would be required to put that money into selected private investment funds.
When they retire, Americans would have to turn over their accounts to the federal government, which would send them monthly checks and would make up the difference if someone's private investments ended up earning less than ordinary Social Security benefits would have paid.
The product of four months of work by Ways and Means Chairman Bill Archer (R-Tex.) and Rep. E. Clay Shaw Jr. (R-Fla.), chairman of the Social Security subcommittee, the plan represents a fundamental break with the traditions of the Depression-era program, which until now has gathered payroll taxes, invested them in government bonds and mailed benefit checks.
Even before its official release today, the Ways and Means plan was drawing vigorous criticism from conservatives and liberals alike. Still, the proposal represents what many on Capitol Hill and beyond regard as perhaps the last best hope to spur swift legislative action on a popular yet delicate issue that both political parties had vowed to make a central priority this year.
In recent weeks, however, momentum for fixing Social Security has been drained by the Balkans war, encroaching election politics and partisan disagreements. Senate Majority Leader Trent Lott (R-Miss.) declared Sunday that Congress would not act on a major Social Security bill this year.
In an effort to reignite the prospects for reform, Archer spoke with President Clinton yesterday afternoon, telling Clinton that he "wanted to work in a bipartisan way and hoped the president would not come out and really attack the plan," according to an Archer spokesman.
Gene Sperling, the White House's chief economic adviser, said Clinton replied that he still hoped a separate plan that the White House laid out in January, which featured individual accounts outside the Social Security system, "could be a basis for bipartisan consensus." But the president also told Archer he "recognized he was trying to put out a serious plan to further the debate and . . . would personally study it carefully," Sperling said.
Following Clinton's example in his State of the Union address, Archer and Shaw intend today to release an outline, rather than specific legislation. Even though Social Security is not expected to run out of money for about three decades, both the White House and Ways and Means leaders say they want to shore up the program now, so that it will be poised to withstand the enormous financial burden of supporting the baby boomers when they begin retiring in a dozen years.
According to several sources familiar with its details, the GOP plan resembles the White House proposal in certain fundamental respects, but contains significant differences. Both approaches depend on large sums from future budget surpluses, seek to generate higher returns through stock market investments, and preserve Social Security's tradition of guaranteeing specific benefits to retirees.
But while the White House has called for the federal government to handle those equity investments -- in addition to the relatively small system of private "USA accounts" apart from the main program -- Archer and Shaw would rely far more heavily on individuals' investment decisions. Trying to protect people from risky investments, their plan would require workers to put their tax credits in funds made up 60 percent of broadly indexed stocks and 40 percent of bonds. The government would decide which funds were acceptable.
To pay for his approach, Clinton has recommended using about two-thirds of expected budget surpluses for the next 15 years. Shaw and Archer would require an indefinite use of general revenue. Several private policy analysts predicted yesterday that such money probably would be needed for 20 to 40 years, until the Social Security program had built up a cushion once enough retirees turn in their private accounts.
Rep. Robert T. Matsui (Calif.), ranking Democrat on the Social Security subcommittee, said yesterday: "This really is privatizing Social Security at the end of the day. I don't think the American public will go for that."
On the other hand, conservative policy analysts said the plan did not differ enough from the existing system. "The individual accounts are really phony accounts," said Michael Tanner of the Cato Institute. "You don't have ownership of them. . . . You have to give it back."
Archer's spokesman, Trent Duffy, said, however, that the plan "doesn't raise taxes on Americans, it doesn't cut benefits, it doesn't raise the retirement age. It's not an extreme plan, but it gets the job done."
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