By CAROLYN LOCHHEAD
San Francisco Chronicle
June 24, 2005
No Democrat has indicated interest so far, but Republicans contend the plan strikes a nerve with voters angered that Congress has spent an estimated $1.7 trillion of surplus Social Security payroll taxes on other things for the past two decades.
The payroll tax surplus is expected to be about $85 billion in cash next year. The government will spend the money on other operations and deposit special nonmarketable bonds, plus interest, in the Social Security trust fund.
Under the GOP proposal, sponsored in the Senate by Sen. Jim DeMint, R-S.C., the money would instead be apportioned to workers according to their payroll tax contributions and invested in marketable Treasury bonds with their name on them. In two years, a special government board would decide whether those investments could be expanded to other assets.
"It has more momentum than any bill has so far," DeMint said, citing 11 Senate co-sponsors. Private-account strategists said Senate Majority Leader Bill Frist, R-Tenn., had quietly signaled his approval, and DeMint said he had White House support.
Still, Democratic leaders have dismissed the idea as just the latest version of President Bush's privatization plan, which they have steadfastly opposed.
House Minority Leader Nancy Pelosi, D-Calif., said the differences were cosmetic.
"One approach would take the funding out of the payroll tax," she said. "The other would be out of the trust fund. It is all fungible. It is the same money. It is the same proposal."
Conservative analysts counter that the only way to save the surplus is to deposit it in marketable assets that Congress cannot spend. Republicans believe that the idea has appeal and could lay the groundwork for larger private accounts.
"In town halls that I've had, when I explain to people, 'Listen, you've paid all this money into Social Security - the average American pays over $5,000 a year - and we haven't saved one penny,' people smile back at me like I'm lying to them," DeMint said. "Because they can't believe it. They think what we're talking about doing, we're already doing."
Conservative Democrats have long blasted Republicans for spending the Social Security surplus, and private account advocates hope that this plan would put them on the spot.
"It calls the Democrats' bluffs on lot of issues," said Michael Tanner, a private-account backer at the libertarian Cato Institute.
Social Security will collect more in payroll taxes from workers than it spends in benefits to recipients until 2008, when the first of the 76 million- member Baby Boom generation are eligible to retire. The surpluses then will dwindle gradually, ending in 2017, according to reports produced by the Social Security administration.
Unless Congress makes changes later, contributions to the proposed private accounts would dwindle, too, peaking at an average of $558 per person in 2008 and falling to just $47 by 2016.
The idea has been circulating for months, but Republicans have been reluctant to back it. Depositing the surplus in marketable Treasury bonds rather than the Social Security trust fund would make the already-record federal deficit appear much larger.
The plan also would create much smaller private accounts - about 2 percent of payroll on average - than the accounts Bush has proposed.
Nor does the plan address Social Security's solvency problems.
At another of his weekly "conversations" on Social Security on Thursday, Bush told an audience in Maryland that he is going to keep pushing for "permanent solvency," again saying he backs reductions in benefits for all but the poorest workers, as well as private accounts. "What I'm not going to listen to is this partisan bickering in Washington, D.C.," he said.
But these proposals have met solid Democratic opposition, generated serious misgivings among some Republicans and have lost traction with the public, despite six months of effort by Bush to sell them.
"Congress can't swallow this apple whole," DeMint said. "We've got to take a bite at it, and I think this helps seniors see how the whole thing could work one step at a time."
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