Social Security Reform: Growing Real Ownership for Workers (GROW) Act of 2005, H.R. 3304
Publication Date: September 2005
Publisher: Library of Congress. Congressional Research Service
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Research Area: Banking and finance
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Abstract:
H.R. 3304 would establish voluntary individual accounts, called GROW accounts, as part of Social Security. It would also reduce the traditional Social Security benefits of account owners. If accounts are invested in Treasury bonds, account owners would have combined account payments and reduced Social Security benefits that are equal to their current law Social Security benefits. If other investment options are offered, account owners are expected to receive higher combined payments on average (though their combined payments could also be lower than under current law).
Social Security currently runs a surplus, though over the long term it faces a funding shortfall. Under H.R. 3304, bonds equal to Social Security's annual cash surplus (i.e., taxes not needed to pay current benefits and costs) would be credited to the Social Security Trust Funds, as they are under current law. General funds equal to the amount of this surplus would also be used to fund GROW accounts. Social Security Administration (SSA) actuaries estimate that each account would be credited with 2.22% of its owner's taxable earnings in 2006, declining to 0.22% in 2016, after which the actuaries project no more surpluses. H.R. 3304's sponsors have called the bill a first step, but have not outlined plans to expand GROW accounts or restore system solvency.
Both the SSA actuaries and the Congressional Budget Office (CBO) project that H.R. 3304 would slightly improve Social Security solvency. SSA and CBO also project that the plan would increase annual budget deficits and the national debt by roughly $1 trillion over 10 years. H.R. 3304 is similar to S. 1302, Senator DeMint's plan. However, S. 1302 would directly transfer Social Security's cash surplus into individual accounts. SSA's actuaries project similar solvency effects for both plans, and nearly identical budgetary effects. This report will be updated as events warrant.