Along with work happening in the House, the Senate Finance Committee also plans to move ahead with work to draft a Social Security bill. The Finance Committee staff plans to meet next week during the July 4 recess with the goal of having a draft ready to present to senators when they return. The focus during staff sessions leading up to this work has been mainly on how to work payroll tax funded "carve-out" accounts into a solvency bill. Apparently, tax increases are off the table, and Senate Finance Committee Chairman Grassley is continuing to push for larger carve-out accounts than proposed last week by Sen. Jim DeMint, (R-SC), sources said. It is not clear yet if the legislation will end up including carve-out accounts or "add on" accounts that are funded outside the Social Security system. Apparently, Grassley will insist on legislation that includes accounts as well as provisions for making the system solvent, even if the House does only a limited DeMint-style proposal without addressing solvency.

While the legislation proposed by Sen. DeMint has the support of the Ways and Means Committee, it varies slightly from what the House intends to propose in a bill sometime in the future. Both however, will call for the creation of private accounts. The DeMint legislation, according to aides, would end the prevailing practice of reducing the deficit by the size of the Social Security surplus, since the obligations to the accounts would be treated as regular outlays. The government, however, could continue to spend the surplus on other needs, since the money would be invested in treasury bonds (just as payroll taxes are today). His plan also calls for the creation of an independent board which could offer individuals the opportunity to diversify the accounts into stocks or other investments. Chairman of the Finance Committee, Sen. Grassley (R-IA), has not yet specifically endorse the DeMint proposal, and it is unclear as of right now how the Finance and Ways and Means Committees will work together to reach a consensus on these ideas. In a statement, Grassley said, "I want to pass legislation that makes Social Security solvent along with personal accounts if possible, and that obviously goes further than this legislation does." Finance Committee ranking member Max Baucus (D-MT) characterized the DeMint plan as being part of a "bait-and-switch" strategy that will likely see the House approve a private account plan and wrap it in a non-amendable conference report to try to force enactment. House Minority Whip Steny Hoyer (D-MD) released a statement saying the proposal would do nothing to address solvency issues, and "would actually weaken Social Security's solvency by diverting the surpluses that are expected over the next several years and depleting the Social Security Trust Fund even sooner." Baucus' point has been supported by evidence elsewhere, most notably by Jason Furman of the Center on Budget and Policy Priorities. Furman has stated that the DeMint proposal would drain $600 billion from the Social Security trust fund in the first ten years it is in effect. He stated it will also increase the deficit to nearly $500 billion in 2007. Much of the cost would be administrative, with Furman noting that thousands of new federal employees would be needed to administer the accounts. Furman presented many of these points and more in his recent testimony before the Ways and Means subcommittee on Social Security.

Sen. Jim DeMint (R-SC) has revealed a Social Security proposal which includes private accounts. DeMint's plan is cosponsored by Sen. Santorum (R-PA), Sen. Graham (R-SC), Sen. Crapo (R-ID), and Sen. Coburn (R-OK). The Ways and Means Committee also unveiled a proposal today which is quite similar to the DeMint plan. The name of the committee's plan is GROW, or "Growing Real Ownership for Workers," and it attempts to paint the creation of private accounts as more worker-friendly than they really are. Under the plan, workers could elect to have their share of the Social Security surplus set aside in a personal account. Critics point out it does nothing to solve the issue of solvency, which is unarguably the biggest problem facing Social Security. Rep. Jim Kolbe stated "If it's an attempt to get us off dead center, to move us forward, that's fine. But it doesn't fix the solvency [problem]: You'd have to borrow the money from some place else."

A number of important hearings have taken place this week. Yesterday, the House Ways and Means subcommittee on Social Security held a hearing examining the impact of the American population’s increasing longevity on Social Security’s finances and exploring ways to encourage work at older ages. Members of the panel heard a range of proposals to address the impact of longer-living individuals on solvency. Witness testimonies can be read here. Also, this morning the Senate Budget committee held a hearing on the solvency of the Pension Benefit Guaranty Corp., which we wrote about in our last issue of the Watcher. The committee heard from Bradley Belt, Director of the PBGC, and CBO head Douglas Holtz-Eakin. The hearing was held because it is clear the defined-pension benefit system needs to be reformed. Rep. Boehner has offered a bill (HR 2830) to overhaul the pension system; however his bill has been criticized by both Republicans and Democrats. Boehner's bill raises pension insurance premiums that companies pay from $19 to $30 to ensure that the PBGC does not need a taxpayer bailout.