Bills Send Social Security Surplus to Private Accounts

Published September 1, 2005

A movement to allow workers to put a portion of their payroll tax dollars into an account they own and could pass on to heirs is taking hold in Washington, DC as bills have been introduced in Congress to implement such a plan.

A group of prominent Senators and Representatives has proposed putting surplus Social Security funds into individual retirement accounts for workers younger than 55 years old. The surplus is the amount of Social Security tax collected from workers that exceeds the amount needed to pay Social Security recipients.

The surplus will be about $85 billion next year. The amount is falling each year, and Social Security will begin to run a deficit by about 2017.

In the House version of the legislation, introduced July 14, the proposed accounts are being called GROW Accounts, an acronym for “Growing Real Ownership for Workers.”

Introduced by Rep. Jim McCrery (R-LA), the measure (HR 3304) has 44 co-sponsors, including Jeff Flake (R-AZ), Sam Johnson (R-TX), Clay Shaw (R-FL), and Paul Ryan (R-WI). A similar bill has been sponsored in the Senate by Sen. Jim DeMint (R-SC) and has 11 co-sponsors. That bill, S 1302, is the Stop the Raid on Social Security Act of 2005.

Ends Spending of Surplus

Many citizens have been surprised and dismayed to learn Congress spends the Social Security surplus, giving back only non-negotiable IOUs from the government. HR 3304 and S 1302 would end that practice.

Under the GROW Accounts proposal, workers will have the option of putting their share of the surplus into private accounts–their own “lockboxes.” Supporters estimate each person’s share will equal about 2 percent of his or her income.

HR 3304 and S 1302 allow individual ownership of Social Security tax dollars and allow workers to will the accounts to their heirs. Under the current system, an individual can work from age 16 to age 65, paying tens of thousands of dollars into Social Security along the way, and have nothing to pass on if he or she dies at 65.

“I’m delighted to see Congress seriously considering legislation that would protect surplus Social Security tax revenues from being spent on anything other than Social Security programs,” said William Beach, director of the Center for Data Analysis at The Heritage Foundation.

“After decades of complaining about raids on the trust fund, Congress is about to do something concrete to prevent future depletions,” Beach said. “The passage of GROW legislation would mark the beginning of Personal Retirement Accounts, which I believe are central to the future viability of the Social Security Old-Age and Survivors Insurance program.”

President George W. Bush has proposed Personal Retirement Accounts for workers younger than 55, funded by a portion of each worker’s Social Security payroll taxes. His plan is more ambitious than the GROW Accounts plan, as it would be an ongoing program instead of one that depends on the declining surplus for funding.

Saving Social Security

The president has not endorsed the GROW Accounts plan, but supporters seem determined to press their cause.

On June 22, as the GROW Accounts bill was being drafted, House Ways and Means Committee Chairman Bill Thomas (R-CA) issued a statement that said in part, “This proposal will likely form the basis for one of the components of a developing retirement security package.”

In a June 22 opinion piece for USA Today, Ryan wrote, “At the very least, the first step in saving Social Security must be to make sure all of Social Security’s taxes go to Social Security, rather than to other federal spending. Ultimately, this proposal takes that first step.”

He added, “There is one idea that most members of Congress and the American people agree on, it’s this: The Social Security surplus should go to Social Security.”

Powerful Opponents

Top House Democrats disagree.

“Despite the gimmicks and smoke screens, this bill unmasks the real Republican agenda by abandoning the pretense of addressing solvency and simply proposing massive borrowing and private accounts,” said Rep. Sander Levin of Michigan, the top Democrat on the House Ways and Means Committee, in a statement shortly after the GROW Accounts Act was introduced.

On June 22, House Minority Leader Nancy Pelosi (D-CA) issued a statement noting, “Despite cosmetic changes, the Republican privatization plan would divert Social Security contributions to fund private accounts, explode the national debt, weaken Social Security rather than strengthening it, and continue the raid on the Social Security trust fund.”

Money Already Being Taken

In a July 9 statement from FreedomWorks, Flake noted, “I have news for the opponents of Social Security reform: money is already being taken out of Social Security [emphasis in original]. The G.R.O.W. Accounts proposal stops the money from being taken out of Social Security. Washington, DC will not change its ways–the surplus will continue to be spent. The only way to stop the raid on the Trust Fund is to transfer ownership of the money to U.S. workers.”

Max Pappas ([email protected]) is director of policy at FreedomWorks.

For more information …

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Additional information is available on the FreedomWorks Web site at and The Heritage Foundation’s Policy Research and Analysis site at