Thomas Working On Consumption Tax Solution To Social Security Problem

by Mike Godfrey, Tax-News.com, Washington

05 May 2005

House Ways and Means Committee Chairman Bill Thomas (R-Ca) is currently working on a new plan to fix the Social Security funding problem that could see at least part of the payroll tax replaced with some form of consumption tax.

Thomas has been calling for both the social security and tax reforms to be tackled together, and is known to prefer more radical solutions to the funding problem than President Bush, who has proposed to divert some payroll taxes to personal accounts invested in stocks and bonds.

Last week, Bush outlined a proposal known as "progressive indexing", designed to ensure Social Security's solvency by cutting benefits for middle and upper-income taxpayers.

Thomas's plan may include lifting contribution limits on retirement savings to offset Social Security benefit cuts for middle and upper-income taxpayers.

According to a forecast by Social Security trustees, the current system will begin paying out more than it receives in payroll taxes by 2017, exhausting its surplus by 2041.

At a press conference last week, Thomas announced a series of hearings beginning on May 12th and continuing at a rate of at least one a week until legislation is produced, possibly by early June.

While Democrats are likely to oppose the majority of Thomas's plans, Social Security Subcommittee Chairman Jim McCrey believes that a substantial number of Republicans are open to radical ideas on the social security issue.

"I can tell you that my colleagues on the Republican side of the aisle are open to a wide array of choices, of alternatives, to developing a solution. There are very few members that are in concrete on just about anything except raising the payroll tax," McCrey stated at last week's press conference.

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