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House GOP offers investment accounts plan

Proponents concede their plan is only a 'good first step'

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House Ways and Means Committee Chairman Bill Thomas calls the GOP plan "a common-sense approach."

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WASHINGTON (CNN) -- House Republicans unveiled Wednesday a scaled-down version of President Bush's plan to create retirement investment accounts as part of Social Security.

The proposal sidesteps the politically thorny issues of reducing Social Security benefits or allowing the money to be invested in the stock market.

Under the plan, investment accounts -- referred to as personal accounts by most Republicans and private accounts by most Democrats -- would be funded with the existing Social Security surplus, rather than diverting a portion of the payroll tax.

Social Security benefits would not be altered, and the money in the accounts would be invested only in U.S. Treasury bonds.

For the past two decades, Social Security has collected more in payroll taxes than it pays out in benefits.

Currently the surplus is lent to the U.S. Treasury in exchange for special-issue Treasury bonds, an accounting maneuver that reduces the size of the federal deficit.

The House GOP plan would use that surplus to fund personal accounts for workers 55 and younger.

But according to government estimates, the surplus is expected to disappear by 2017 because the retirement of the "baby boom" generation will push up the cost of providing benefits. At that point, another funding source would have to be found.

Proponents of the measure conceded their plan is only a "good first step" that will not permanently fix the long-term financial problems of Social Security, which Bush has set as a benchmark for a reform bill.

"This proposal, in and of itself, does not completely fix the Social Security solvency challenges, this is clearly a step in the right direction," Rep. Paul Ryan of Wisconsin said at a news conference.

"It also tells the American people that we're finally getting serious about saving the Social Security surplus for Social Security benefits."

House Ways and Means Committee Chairman Bill Thomas of California, who is working on a broad retirement bill that will also include pension and tax reform, described the proposal as "a common-sense approach."

The House may act on Thomas' bill as early as next month, the GOP lawmakers said.

Democrats reacted coolly to the proposal. Senate Minority Leader Harry Reid of Nevada called it "a transparent political gimmick that would weaken Social Security," adding that the plan would "force benefit cuts and an increase in debt."

"We all know that by spending the Social Security surplus year after year, Congress is stealing from our children and grandchildren," said Rep. John Shadegg of Arizona.

"We need to take retirement savings out of the hands of the politicians who are squandering it and give it back to the American people."

The House GOP plan differs from Bush's concept in significant ways:

  • The president has proposed diverting part of the Social Security payroll tax into private or personal accounts, which critics complain would erode the financial underpinnings of the existing system. The House plan gets around that issue by using the surplus to fund the accounts.
  • Bush wants workers to be able to invest the money in a range of government-approved investment accounts, which critics say could expose them to the volatility of the stock market. The House plan would allow the money to be invested only in U.S. Treasury bonds.
  • In return for allowing personal accounts, Bush has proposed reducing Social Security benefits for workers who choose to participate in the new system. The House plan makes no changes to benefits.
  • Both plans would be voluntary, and both would allow workers to pass the money in their accounts to their heirs at death.

    The House Republican plan also differs from a plan put forward Tuesday by GOP Sen. Robert Bennett of Utah, which does not create investment accounts and attacks long-term solvency issues by changing the way increases in future benefits are calculated. (Full story)

    Bennett said he had received Bush's blessing to proceed with the plan, which he hopes will be able to garner some Democratic support and break the current "logjam" over Social Security reform.

    The White House made it clear, however, that despite the encouragement he gave Bennett, Bush was still committed to the idea of creating personal accounts.

    In a speech Wednesday in Maryland, Bush vowed "to continue to talk about this issue" until Congress acts.

    "The reason I brought it up is, I cannot travel our country looking at young workers who are paying payroll taxes into a system that I know is going broke," Bush said.

    "I expect people from both parties to put ideas on the table, and so do the American people."

    CNN's Ted Barrett contributed to this report.

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