Social Security: More Ideas

In a welcome move, two new proposals have advanced the Social Security reform debate. Reps. Bill Archer (R) of Texas, chairman of the powerful House Ways and Means Committee, and E. Clay Shaw Jr. (R) of Florida, Social Security Subcommittee chairman, unveiled a plan for overhauling the program without raising taxes or lowering benefits. Reps. Jim Kolbe (R) of Arizona and Charles Stenholm (D) of Texas released their ideas on broader reform.

Under the Archer-Shaw plan, the government would establish individual Social Security Guarantee Accounts for each worker using a refundable tax credit of 2 percent of earnings - capped at a current maximum of $1,452 a year.

Workers would invest 60 percent of these funds in stocks and 40 percent in bonds. The assets would grow tax free until retirement. Then workers would turn them over to Social Security, which would pay a monthly annuity based on the funds in the account. If the account is large enough to pay more than the normal Social Security benefit, the individual would get the heftier check. Otherwise, they'd be guaranteed the usual monthly amount.

The Archer-Shaw plan is quite similar to President Clinton's call for Universal Savings Accounts, discussed here April 23. On the plus side, it would increase some workers' retirement income. It would create individual investment accounts for low-income workers, encouraging needed saving and educating workers about long-term investing. It keeps Social Security solvent for at least 75 years.

But the plan has serious flaws. It doesn't really reform the program much. It relies on a tax-code-complicating tax credit. It creates a new entitlement program funded out of general revenues, whether there's a non-Social Security surplus or not.

A better way: personal retirement accounts funded with a percentage of payroll taxes as part of comprehensive reform. Workers would own these accounts, could pass them on to their heirs, and would get a better return. No costly entitlement is created. The Kolbe-Stenholm plan, like others, includes such personal accounts, which would offset lower minimum benefits.

Now the president and Congress must overcome their distrust and negotiate a Social Security reform package. With the election cycle fast approaching, there's no time to lose.