The Atlanta Journal and Constitution

December 14, 2001 Friday, Home Edition

SECTION: News; Pg. 4C

No benefit cuts or tax hikes in Social Security proposal

by LARRY LIPMAN

SOURCE: Cox Washington Bureau

Washington --- A bill introduced Thursday would solve Social Security's financial woes without cutting benefits or raising taxes, its sponsor said.

The legislation from Rep. E. Clay Shaw Jr. (R-Fla.), chairman of the House Social Security subcommittee, came two days after a presidential panel offered three alternatives to reform the system by creating individual retirement accounts. But all three called for guaranteed benefit cuts, and two options would have reduced regular benefits. On Wednesday, the House voted 415-5 for a Shaw resolution opposing any cuts in current or future benefits.

President Bush and House leaders have indicated that they do not want to consider Social Security reforms before next year's election, but Shaw said he will push the matter if he senses public groundswell.

Shaw's proposal would be an addition to the current Social Security system but would not change it. The bill would allow workers to voluntarily receive a tax credit from the federal government that they would invest in a personal retirement account, through a mutual fund approved by the government.

If an investment account performed well enough that payments upon retirement would exceed the level of the regular Social Security program, a retiree would use the account for his or her benefits. If the account did not perform as well, the person would be paid regular Social Security benefits, and the invested money would revert to the federal government.

The money for the tax credit would come from the general fund through increased borrowing. Over the next 36 years, the government would have to borrow about $3.6 trillion.

Shaw said the money would be repaid by Social Security surpluses after the year 2037 and be fully repaid by 2075. He predicted that the Social Security program would run a surplus by then because people would use their investment accounts --- rather than the Social Security program --- to finance their retirement.

Shaw said that his bill would be financed with "red ink" from the federal budget but that it was worth it to prevent cutting benefits.

Without reforms, Social Security would be able to pay only 73 percent of benefits after 2038 and 67 percent of benefits by 2075, Shaw said.

As the grandfather of 13, Shaw said, "I couldn't possibly preside over the Social Security subcommittee and do nothing, knowing full well that doing nothing means a tremendous cut in their Social Security benefits or a tremendous increase in taxes to pay for their benefits."

Democrats criticized the bill. "The Shaw plan gets the money to fund his private accounts by pumping up the public debt," said Dan Maffei, a spokesman for the House Ways and Means Committee's Democratic members. "This is not really much of a solution. It's shifting the problem to someone else."