WASHINGTON – It's now almost certain that the House will vote this fall on a Social Security reform bill to let workers invest part of their payroll taxes in U.S. Treasury bonds that they would own.
Contrary to the belief that President Bush's investment accounts plan is dead, one-half of his reform proposal is alive and kicking in the House – the far less controversial part. The so-called "grow accounts" bond investment bill has the full support of House Republican leaders, including Speaker Dennis Hastert (R-Ill.) and Majority Leader Tom DeLay (R-Texas), who is pushing for an early vote.
The only thing that's missing right now is Bush's support. The White House has been cool to the idea, but conservative strategists say the bill would "pass the House in a heartbeat" with the president's backing. While its prospects remain uncertain in the Senate, a roll call vote on its merits would put Bush back onto the offensive on one of his toughest issues, throw the Democrats into a thorny political situation and, if it fails, give Republicans a great issue to run on in 2006.
"Grow accounts take Republicans out of the weeds on Social Security," said Larry Hunter, vice president and chief economist of the Free Enterprise Fund, which advises Republicans on economic issues.
Whether the trimmed-down retirement accounts proposal will be part of a more comprehensive reform bill being put together by Ways and Means Chairman Bill Thomas (R-Calif.) or the House enacts it separately isn't clear right now, a senior House Republican leadership official told me. But the bond bill will come up for a vote in the House this year, "one way or another," he said.
"I guarantee this would not be in play if the speaker did not want it to be in play," he added.
In the fierce political warfare that has been raging over Social Security reform, Hastert and other GOP leaders have been playing their cards very close to their vests. But in a confidential internal memo that Thomas sent to House GOP leaders earlier this month, he said grow accounts "likely" will be a part of the package he brings out of committee after Labor Day.
Democrats have been able to force Bush and the Republicans almost to a standstill on any plan that includes stock investments, saying it's too risky, costly and would undermine Social Security's future. They have not been able to make the same argument about investing in U.S. Treasury bonds because that's where the government invests Social Security money now.
The Republican plan, sponsored by Ways and Means Social Security subcommittee chairman Jim McCrery of Louisiana, would allow workers to invest some portion of their payroll taxes in such bonds, backed by the full faith and credit of the U.S. government. Here's how it would work:
The Social Security payroll tax system takes in billions of dollars more than it needs to pay out monthly retirement checks. The government takes this huge cash surplus and uses it as general revenue to pay its other bills. In return, the feds give the Social Security's so called "trust fund" Treasury bonds that promise to pay back the borrowed money in future years.
Under the grow accounts proposal, workers who sign up would own a share of these bonds and the interest payments that would accrue from them over their working years. Instead of having nothing but promises that they will get their future benefits, they would own secure, tangible assets that no one could take away from them when they are ready to retire, and which they could leave to their heirs.
"It's a very positive first step," said Social Security analyst David John at the Heritage Foundation. "The way the accounts are structured, there's no risk. You would own the bonds. It would be your money and could not be spent on highways or other things."
While the bond idea is less than the sweeping privatization reforms that conservative reformers wanted, they now see the stripped-down proposal as "the camel's nose under the Social Security tent" that eventually would lead to a more expanded program that includes stocks.
The government's thrift savings pension plan, which now allows federal employees to invest in half a dozen different stock funds, began as a bond fund "before it was broadened to include stocks," John said.
"The president has it within his power to get his people to sit down with the guys in Congress and say 'let's get personal bond accounts now,'" Hunter told me. "He has the opportunity to move beyond the White House's muddled message on Social Security."
He's right. It would end the spending raid on the trust fund. It would give Bush a huge victory in the House on one his toughest challenges. It would sweep one of the Democrats' biggest issues off the table long before next year's elections. It would give younger workers the chance to build real wealth as a first step to reforming the entire system.
How about it, Mr. President?