Nightmare on Social Security Street

If you liked President Bush’s private Social Security accounts, you’ll love the sequel – top Republicans want to tap the system’s surplus to finance individual accounts.

Democrats won’t sign onto any plan to shore up Social Security’s long-term solvency so long as individual accounts stay on the table.

They know that the more Bush campaigns for Social Security accounts, the more their appeal seems to fade, as exemplified by a new USA Today-CNN-Gallup poll that found 64 percent of the public disapproves of the way Bush has handled the issue.

With lawmakers headed home for the July 4 recess, here’s where things stand:

Q: How do Republican lawmakers’ accounts differ from the president’s?

A: Plans authored by Republican Sen. Jim DeMint of South Carolina and Rep. Jim McCrery of Louisiana, with backing by House Republican leaders, would redirect surplus Social Security payroll taxes to individual accounts for workers 55 and younger once current benefits and administrative costs are paid. The amount diverted would be about 2.2 percent of wages, up to a cap.

Bush would let workers 55 and under divert up to 4 percent of pay from future payroll tax collections to the accounts.

Q: What Social Security surplus?

A: Yes, Social Security has built a huge surplus since it started collecting extra payroll taxes in 1984. But presidents and Congresses since then have borrowed those surpluses to mask the size of the federal deficit and other spending to the tune of $1.67 trillion so far.

This year alone Social Security will collect $163 billion more in payroll taxes than it is paying in benefits. Surplus tax collections will continue until 2017, when government actuaries predict benefit payouts will exceed tax collections.

Remember Bush’s recent tour of the Social Security vault in West Virginia, where he pronounced, “There is no trust fund, just IOUs that I saw firsthand?” Well, those IOUs are interest-bearing Treasury securities backed by the U.S. government and are what DeMint, McCrery and their colleagues count on to create private Social Security accounts.

Q: Would investment options differ from Bush’s proposal?

A: That’s not clear.

Bush hasn’t drafted specific legislation, but throughout his extended Social Security tour, he has pointed to the federal Thrift Savings Plan and its half-dozen low-cost, low-risk investment funds.

The congressional proposals call for a supervisory board to run the accounts and recommend investment options, but the mechanics differ.

The House plan gives the board until 2009 to recommend to Congress how the money should be invested in something other than Treasury securities, subject to congressional approval

The Senate plan lets the board decide on its own how the money should be invested and whether workers could sell their Treasury bonds to buy stocks instead.

Q: What would the congressional plans do to the rest of the budget?

A: The deficit would increase for day-to-day federal operations by as much as $1 trillion the next decade unless the money was made up through spending cuts, tax increases or both.

Q: Would the congressional plans keep Social Security solvent?

A: Neither solves the basic problem that Social Security payroll taxes won’t be enough to pay promised benefits by mid-century. Government actuaries estimate the system should be able to pay between 73 percent and 82 percent of guaranteed benefits out of the current 12.4 percent payroll tax collections, based on modest growth in the economy.

Q: With those cutbacks, won’t retirees feel poorer?

A: Yes, if Social Security makes up most of their retirement income, as it does for most retirees today when Social Security replaces 42 cents on average of every $1 in pay upon retirement.

Q: How does Bush address long-term solvency?

A: Bush has endorsed changing the formula by which Social Security adjusts benefits to inflation to make it less generous to the highest-earning two-thirds of workers, those making more than $20,000 today.

If that inflation formula change is OK’d and phased in by 2075, retirees who made the average wage of $36,000 in today’s dollars would draw 26 cents in Social Security for every $1 of pay, and those making $60,000 today just 17 cents for every $1 earned.

The formula change would close 70 percent of Social Security’s shortfall, so there would be the need for further benefit cuts, tax hikes, retirement age increases or all of the above.

Q: What next?

A: Iowa Republican Charles Grassley, the senator in charge of trying to put Bush’s Social Security overhaul into law, plans to plug away at private accounts in hopes of moving a bill after the July 4 break even though Grassley says fellow senators “want it to go away.”

Chances look better for the House GOP accounts, where House Ways and Means Chairman Bill Thomas, R-Calif., is expected to include them in his retirement reform package that also will address pension law changes and retirement savings tax breaks. Thomas plans to address Social Security’s long-term solvency, too.

(Contact Mary Deibel at deibelm(at)