Talk of Social Security’s Solvency Gets Diluted as GOP Pushes Personal Accounts

For Immediate Release:

June 28, 2005

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By Alex Wayne

Congressional Quarterly

The idea of securing Social Security’s solvency has been relegated to a sideshow as congressional Republicans focus on a proposal to create individual accounts from the program’s surplus.

House Ways and Means Committee Republicans backing the plan for new individual accounts will brief the rest of their caucus Wednesday.

The plan, which would dedicate Social Security surpluses to individual accounts for workers younger than 55, does little to address the program’s long-term financial imbalance. And its backers express little interest in the kinds of benefit reductions or tax increases that other Republicans say are necessary to keep Social Security solvent.

“We do not subscribe to pain,” said Republican Rep. E. Clay Shaw Jr. of Florida, one of the Ways and Means Republicans behind the new accounts plan. “We’re going to do everything we can to try to solve this thing. But there’s no sense in rolling out something that’s not going to go anywhere.”

Shaw and other Ways and Means Republicans, however, caution the committee’s chairman, Republican Bill Thomas of California, is responsible for a larger “retirement bill” that is expected to include the surplus accounts proposal, and they say Thomas is still considering other measures to fix Social Security’s financial problems. They declined to elaborate on their discussions with Thomas, who has been tight-lipped about details of his legislation.

But in the face of continuing Democratic opposition to a Social Security overhaul that includes individual accounts, Republican leaders — especially in the House — are reluctant to ask their members to vote for legislation that includes Social Security benefit reductions that might prove unpopular with the public, such as raising the retirement age. Thomas’ bill could instead package personal accounts with pension changes, incentives for private saving and cuts to taxes on capital gains and dividends — and leave out the more politically risky Social Security changes.

“That is certainly one of the options that’s being pursued,” said Jade West, a senior vice president at the National Association of Wholesaler-Distributors, which is leading a coalition of trade associations and business groups promoting President Bush’s Social Security overhaul. But she cautioned that Thomas has not been open about his plans, even with political allies.

“There is a certain school of thought that they should address the personal accounts only, through . . . locking up the Social Security surplus and having it used for personal retirement accounts,” she said. “I don’t know that the president is headed in that direction, and I don’t know that Congress will move in a direction entirely disconnected from where the president wants to go.”

But ignoring the solvency question could cost backers of an overhaul the support of some Republicans. Republican Rep. Jim Kolbe of Arizona, said he and other moderates would vote against a bill that included personal accounts without “tough choices” on reducing the program’s costs. He believes the number of members in this “pain caucus,” as some have called it, is large enough to persuade Thomas to address solvency in his bill.

On the other side of the Capitol, Senate Finance Chairman Charles E. Grassley, R-Iowa, is still hopeful that his panel’s Republicans can agree on a bill that combines some of the tough choices Kolbe favors.

Grassley said Tuesday that he believes he has reached a “rough consensus” with his panel’s Republicans on legislation to address Social Security’s financial problems.

Grassley said his plan would entail slowing the growth of benefits by changing the indexes used to calculate them. It also would require an increase in the retirement age that aides described as small, and unspecified revenue increases. Grassley and a Finance Committee aide said his bill would not raise either Social Security’s 12.4 percent payroll tax rate or the $90,000 cap on wages subject to the tax.

The aide would not say specifically how Grassley intended to boost revenue, but pointed to testimony during a Finance Committee hearing earlier this year on ways that Congress could require more people to pay Social Security payroll taxes, such as small-business owners who take profits from their companies in lieu of salary.

The aide said “there is a majority of the Republican members who have more or less agreed to some basic things that move us toward solvency.”

An aide for Sen. Olympia J. Snowe, R-Maine, said Grassley has not made as much progress as he seems to think. “If anything, it feels like in the last couple weeks the group as a whole has gone backward on consensus,” the aide said. “I don’t understand how he gets to that conclusion unless he’s got everybody but us.”

Snowe has made clear she will not support a Social Security bill that includes individual accounts created from the program’s payroll tax revenue.

Grassley will present new Social Security proposals to his committee’s Republicans — including an individual accounts plan — at a meeting this week, the Finance aide said.