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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2971 Introduced in House (IH)]

  2d Session
                                H. R. 2971

To amend the Internal Revenue Code of 1986 and the Social Security Act 
  to reduce social security taxes and to provide for social security 
   individual retirement accounts funded by social security payroll 
                              deductions.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                           February 23, 1996

  Mr. Thomas introduced the following bill; which was referred to the 
   Committee on Ways and Means, and in addition to the Committee on 
Economic and Educational Opportunities, for a period to be subsequently 
   determined by the Speaker, in each case for consideration of such 
 provisions as fall within the jurisdiction of the committee concerned

_______________________________________________________________________

                                 A BILL

 
To amend the Internal Revenue Code of 1986 and the Social Security Act 
  to reduce social security taxes and to provide for social security 
   individual retirement accounts funded by social security payroll 
                              deductions.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Social Security Individual 
Retirement Act of 1996''.

SEC. 2. REDUCTION OF SOCIAL SECURITY TAXES.

    (a) Tax on Employees.--Subsection (a) of section 3101 of the 
Internal Revenue Code of 1986 (relating to OASDI tax on employees) is 
amended--
            (1) by striking the last item in the table and inserting 
        the following:

``1990, 1991, 1992, 1993, 1994, 1995, or 1996........     6.20 percent 
``1997 or thereafter.................................  6.06 percent;'';
        and
            (2) by adding after and below the table the following:
``except that, in the case of an eligible employee (as defined in 
section 255(3) of the Social Security Act), the rate of tax under this 
subsection shall be 0.0 percent with respect to wages paid after 
December 31, 1996, for pay periods ending after such date.''
    (b) Tax on Employers.--Subsection (a) of section 3111 of such Code 
(relating to OASDI tax on employers) is amended by striking the last 
item in the table and inserting the following:

``1990, 1991, 1992, 1993, 1994, 1995, or 1996........     6.20 percent 
``1997 or thereafter.................................   6.06 percent.''
    (c) Self-Employment Tax.--Subsection (a) of section 1401 of such 
Code (relating to OASDI tax on self-employment income) is amended--
            (1) by striking the last item in the table and inserting 
        the following:

      

              ``December 31, 1989....  January 1, 1997.......      12.40
              ``December 31, 1996....  ......................   12.12;''
                                                                        

        and
            (2) by adding after and below the table the following:
``except that, in the case of an eligible self-employed individual (as 
defined in section 255(4) of the Social Security Act), the rate of tax 
under this subsection shall be 6.6 percent of the amount of the self-
employment income in the case of a taxable year after December 31, 
1996.''
    (d) Effective Dates.--
            (1) In general.--Except as otherwise provided in this 
        subsection, the amendments made by this section shall apply to 
        remuneration paid after December 31, 1996.
            (2) Self-employment tax.--The amendments made by subsection 
        (c) shall apply to taxable years beginning after December 31, 
        1996.

SEC. 3. INDIVIDUAL RETIREMENT PROGRAM AND SOCIAL SECURITY INDIVIDUAL 
              RETIREMENT ACCOUNTS.

    (a) In General.--Title II of the Social Security Act is amended--
            (1) by inserting before section 201 the following:

                    ``Part A--Insurance Benefits'';

        and
            (2) by adding at the end the following new part:

                ``Part B--Individual Retirement Program

               ``social security payroll deduction plans

    ``Sec. 251. (a) In General.--Each person who is a covered employer 
for a calendar year shall have in effect a social security payroll 
deduction plan for such calendar year for such person's eligible 
employees.
    ``(b) Requirements.--For purposes of this part, the term `social 
security payroll deduction plan' means a written plan of an employer 
if--
            ``(1) the plan applies only with respect to wages of 
        eligible employees,
            ``(2) under such plan, the prescribed social security 
        contributions will be deducted from the employee's wages and 
        paid to a social security individual retirement account 
        designated in accordance with section 252(a),
            ``(3) under such plan, the employer is required to pay the 
        amount so deducted to the specified social security individual 
        retirement account within 10 business days after the payment of 
        the wages from which the amount was deducted,
            ``(4) the employer receives no compensation for the cost of 
        administering such plan, and
            ``(5) in the case of a plan under which there is more than 
        1 social security individual retirement account, the employer 
        does not make any endorsement with respect to any such 
        accounts.
    ``(c) Amounts Deducted May Be Accumulated by Employer in Certain 
Cases.--If, under the terms of a social security individual retirement 
account designated under section 252(a), contributions below a 
specified amount will not be accepted, the requirements of subsection 
(b)(2) shall be treated as met if amounts deducted from the wages of 
such employee are accumulated by the employer and paid to such plan not 
later than 10 business days after the first day on which the 
accumulated amount exceeds such specified amount.

         ``designation of accounts under payroll deduction plan

    ``Sec. 252. (a) In General.--Except as provided in subsection (b), 
the social security individual retirement account to which the 
prescribed social security contributions with respect to any employee 
are required to be paid under section 251 shall be a social security 
individual retirement account designated by the employee to the 
employer not later than the later of--
            ``(1) 10 business days after the date on which the employee 
        becomes an employee of such employer, or
            ``(2) December 31, 1996.
Any such designation shall be made in such form and manner as may be 
prescribed in regulations of the Commissioner of Social Security.
    ``(b) Designation in Absence of Timely Designation by Employee.--In 
any case in which no timely designation of the social security 
individual retirement account is made, the employer shall make the 
designation of the social security individual retirement account in 
accordance with regulations of the Commissioner of Social Security.

              ``participation by self-employed individuals

    ``Sec. 253. (a) In General.--Each eligible self-employed individual 
who receives self-employment income for any taxable year beginning 
after December 31, 1996, shall, in such form and manner as shall be 
prescribed in regulations of the Commissioner of Social Security, 
deposit in a social security individual retirement account maintained 
by such individual the prescribed social security contribution for such 
taxable year. Such deposit shall be made within 10 business days after 
the receipt by such individual of such self-employment income.
    ``(b) Amounts Payable May Be Accumulated in Certain Cases.--If, 
under the terms of a social security individual retirement account 
maintained under subsection (a), contributions below a specified amount 
will not be accepted, the requirements of subsection (a) shall be 
treated as met if amounts otherwise payable under subsection (a) are 
accumulated by the individual and paid to such account not later than 
10 business days after the first day on which the accumulated amount 
exceeds such specified amount.

 ``designation of accounts of surviving spouses and surviving divorced 
                                spouses

    ``Sec. 254. (a) In General.--Except as provided in subsection (b), 
in the case of a deceased individual with respect to whom a social 
security individual retirement account was established and maintained 
pursuant to section 252 or 253, the trustee of such account shall 
transfer the balance in such account to a social security individual 
retirement account maintained by an eligible survivor if such account 
is designated by the eligible survivor to the trustee not later than 20 
business days after the date of such individual's death. Any such 
designation shall be made in such form and manner as may be prescribed 
in regulations of the Commissioner of Social Security.
    ``(b) Designation in Absence of Timely Designation by Eligible 
Survivor.--In any case in which, upon the expiration of such 20-day 
period, there is an eligible survivor but no timely designation of a 
social security individual retirement account is made by the eligible 
survivor under subsection (a), the trustee shall make the designation 
of the social security individual retirement account under subsection 
(a) on behalf of such eligible survivor, in accordance with regulations 
of the Commissioner of Social Security.
    ``(c) Disposition of Account Balance Where No Eligible Survivor 
Exists.--In any case in which, upon the expiration of such 20-day 
period no timely designation under subsection (b) has been made and 
there is no eligible survivor, the trustee of the deceased individual's 
account shall transfer the balance in such account to the Federal Old-
Age and Survivors Insurance Trust Fund within the period of 20 business 
days following the expiration of such 20-day period.

                             ``definitions

    ``Sec. 255. For purposes of this part--
            ``(1) Social security individual retirement account.--The 
        term `social security individual retirement account' means any 
        individual retirement account (as defined in section 408(a) of 
        the Internal Revenue Code of 1986) which is administered or 
        issued by a bank (as defined in section 408(n) of such Code) 
        under terms which restrict deposits to prescribed social 
        security contributions made to the account pursuant to section 
        251 or 253 and transfers made to the account pursuant to 
        section 254.
            ``(2) Covered employer.--The term `covered employer' means, 
        for any calendar year, any person on whom an excise tax is 
        imposed under section 3111 of the Internal Revenue Code of 1986 
        with respect to having an individual in his employ to whom 
        wages are paid by such person during such calendar year.
            ``(3) Eligible employee.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                term `eligible employee' means, in connection with any 
                person who is a covered employer for any calendar year, 
                any individual--
                            ``(i) with respect to whose employment by 
                        such employer during such calendar year there 
                        is imposed an excise tax under section 3111 of 
                        the Internal Revenue Code of 1986, and
                            ``(ii) who, as of January 1, 1997, has not 
                        been credited under part A with any quarters of 
                        coverage (within the meaning of section 
                        213(a)(2)).
                    ``(B) Election of participation.--
                            ``(i) In general.--The requirements of 
                        subparagraph (A)(ii) shall be deemed satisfied 
                        in the case of an individual who does not 
                        otherwise meet such requirements if such 
                        individual files with the employer and the 
                        Commissioner of Social Security, in such form 
                        and manner as shall be prescribed in 
                        regulations of the Commissioner, a written and 
                        signed declaration of such individual's 
                        intention to be treated as an eligible employee 
                        for purposes of this title and such election 
                        meets the requirements of clause (ii).
                            ``(ii) Requirements.--Any election under 
                        clause (i) must be so filed not later than 
                        December 15, 1996, and must designate the 
                        social security individual retirement account 
                        to which the prescribed social security 
                        contributions with respect to such individual 
                        are to be paid.
                            ``(iii) Irrevocability.--Any election under 
                        clause (i) shall be irrevocable and shall be 
                        effective with respect to wages paid after 
                        December 31, 1996, for pay periods ending after 
                        such date.
            ``(4) Eligible self-employed individual.--
                    ``(A) In general.--Subject to subparagraph (B), the 
                term `eligible self-employed individual' means any 
                individual--
                            ``(i) on whose self-employment income for a 
                        taxable year beginning after December 31, 1996, 
                        there is imposed a tax under section 1401(a) of 
                        the Internal Revenue Code of 1986, and
                            ``(ii) who, as of January 1, 1997, has not 
                        been credited under part A with any quarters of 
                        coverage (within the meaning of section 
                        213(a)(2)).
                    ``(B) Election of participation.--
                            ``(i) In general.--The requirements of 
                        subparagraph (A)(ii) shall be deemed satisfied 
                        in the case of an individual who does not 
                        otherwise meet such requirements if such 
                        individual files with the Commissioner of 
                        Social Security, in such form and manner as 
                        shall be prescribed in regulations of the 
                        Commissioner, a written and signed declaration 
                        of such individual's intention to be treated as 
                        an eligible self-employed individual for 
                        purposes of this title and such election meets 
                        the requirements of clause (ii).
                            ``(ii) Requirements.--Any election under 
                        clause (i) must be so filed not later than 
                        December 15, 1996, and must designate the 
                        social security individual retirement account 
                        to which the prescribed social security 
                        contributions with respect to such individual 
                        are to be paid.
                            ``(iii) Irrevocability.--Any election under 
                        clause (i) shall be irrevocable and shall be 
                        effective with respect to self-employment 
                        income for taxable years beginning after 
                        December 31, 1996.
            ``(5) Prescribed social security contribution.--The term 
        `prescribed social security contribution' means--
                    ``(A) with respect to wages paid to an employee, an 
                amount equal to the amount of tax payable by the 
                employer based on such wages under section 3111 of the 
                Internal Revenue Code of 1986 with respect to having 
                such employee in his employ, and
                    ``(B) with respect to self-employment income 
                received by an individual, an amount equal to the 
                amount of tax payable by the individual based on such 
                self-employment income under section 1401(a) of such 
                Code.
            ``(6) Eligible survivor.--The term `eligible survivor' of a 
        deceased individual means such individual's widow or, if there 
        is no such widow, such individual's last surviving divorced 
        wife or surviving divorced husband. Such term shall not include 
        any such surviving divorced wife or surviving divorced husband 
        who is married on the date of the deceased individual's death.
            ``(7) Business day.--The term `business day' means any day 
        other than a Saturday, Sunday, or legal holiday in the area 
        involved.

                              ``penalties

    ``Sec. 256. (a) Failure To Establish Individual Retirement Payroll 
Deduction Plan.--Any covered employer who fails to meet the 
requirements of section 251 for any calendar year shall be subject to a 
civil penalty of not to exceed the greater of--
            ``(1) $5,000, or
            ``(2) $100 for each eligible employee of such employer as 
        of the beginning of such calendar year.
    ``(b) Failure To Make Deductions Required Under Plan.--Any covered 
employer who fails to deduct an amount from the wages of an eligible 
employee in accordance with an applicable social security payroll 
deduction plan shall be subject to a civil penalty of not to exceed 
$500 for each such failure.
    ``(c) Failure by Employer To Make Timely Payments to Social 
Security Individual Retirement Account.--If an amount deducted from the 
wages of an eligible employee under a social security payroll deduction 
plan is not paid to the specified social security individual retirement 
account within the time prescribed by section 251--
            ``(1) the employer shall be subject to a civil penalty of 
        not to exceed 50 percent of the amount so deducted, and
            ``(2) shall be liable to the employee for interest on the 
        amount so deducted at the underpayment rate determined under 
        section 6621 of the Internal Revenue Code of 1986 from the last 
        day by which such amount was required to be so paid to the date 
        on which such amount is paid into the specified social security 
        individual retirement account.
    ``(d) Failure by Eligible Self-Employed Individual To Make Timely 
Payments to Social Security Individual Retirement Account.--If a 
prescribed social security contribution is not paid by an eligible 
self-employed individual to a social security individual retirement 
account maintained by the individual within the time prescribed by 
section 253, such individual shall be subject to a civil penalty of not 
to exceed 50 percent of the amount of such contribution.
    ``(e) Failure by Trustee To Make Timely Transfers.--If the balance 
in the social security individual retirement account of a deceased 
individual is not transferred by the trustee within the time prescribed 
by section 254--
            ``(1) the trustee shall be subject to a civil penalty of 
        not to exceed 50 percent of the amount of the balance, and
            ``(2) shall be liable--
                    ``(A) in the case of a transfer required to be made 
                to another social security individual retirement 
                account, to the widow or the surviving divorced wife or 
                surviving divorced husband (as the case may be), or
                    ``(B) in the case of a transfer required to be made 
                to the Federal Old-Age and Survivors Insurance Trust 
                Fund, to such Trust Fund,
        for interest on the balance at the underpayment rate determined 
        under section 6621 of the Internal Revenue Code of 1986 from 
        the last day by which such balance was required to be so 
        transferred to the date on which such balance is transferred to 
        the designated social security individual retirement account.
    ``(f) Rules for Application of Section.--
            ``(1) Penalties assessed by commissioner of social 
        security.--Any civil penalty assessed by this section shall be 
        imposed by the Commissioner of Social Security and collected in 
        a civil action.
            ``(2) Compromises.--The Commissioner may compromise the 
        amount of any civil penalty imposed by this section.
            ``(3) Authority to waive penalty in certain cases.--The 
        Commissioner may waive the application of this section with 
        respect to any failure if the Commissioner determines that such 
        failure is due to reasonable cause and not to intentional 
        disregard of rules and regulations.''
    (b) Amounts Deducted To Be Shown on W-2 Statements.--Subsection (a) 
of section 6051 of the Internal Revenue Code of 1986 (relating to 
receipts for employees) is amended--
            (1) by striking ``and'' at the end of paragraph (9);
            (2) by striking the period at the end of paragraph (10) and 
        inserting ``, and''; and
            (3) by adding at the end the following new paragraph:
            ``(11) the total amount deducted from the employee's wages 
        under a social security payroll deduction plan established 
        under part B of title II of the Social Security Act.''
    (c) Exemption From ERISA Requirements.--Subsection (b) of section 4 
of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 
1003(b)) is amended--
            (1) by striking ``or'' at the end of paragraph (4);
            (2) by striking the period at the end of paragraph (5) and 
        inserting ``; or''; and
            (3) by adding at the end the following new paragraph:
            ``(6) such plan is a social security payroll deduction plan 
        established under part B of title II of the Social Security Act 
and does not provide for employer contributions.''
    (d) Effective Date and Notice Requirements.--
            (1) Effective date.--The amendments made by subsection (a) 
        (and any social security payroll deduction plan required 
        thereunder) shall apply with respect to wages paid after 
        December 31, 1996, for pay periods ending after such date and 
        self-employment income for taxable years beginning after such 
        date.
            (2) Notice requirements.--
                    (A) In general.--Not later than October 1, 1996, 
                the Commissioner of Social Security shall--
                            (i) send to the last known address of each 
                        eligible individual a description of the 
                        program established by the amendments made by 
                        this Act, which shall be written in the form of 
                        a pamphlet in language which may be readily 
                        understood by the average worker,
                            (ii) provide for toll-free access by 
                        telephone from all localities in the United 
                        States to the Social Security Administration 
                        through which individuals may obtain 
                        information and answers to questions regarding 
                        such program, and
                            (iii) provide information to the media in 
                        all localities of the United States about such 
                        program and such toll-free access by telephone.
                    (B) Eligible individual.--For purposes of this 
                paragraph, the term ``eligible individual'' means an 
                individual who, as of the date of the pamphlet sent 
                pursuant to subparagraph (A), is indicated within the 
                records of the Social Security Administration as--
                            (i) not having attained age 65, and
                            (ii) being credited with one or more 
                        quarters of coverage under section 213 of the 
                        Social Security Act.
                    (C) Matters to be included.--The Commissioner of 
                Social Security shall include with the pamphlet sent to 
                each eligible individual pursuant to subparagraph (A)--
                            (i) a statement of the number of quarters 
                        of coverage indicated in the records of the 
                        Social Security Administration as of the date 
                        of the description as credited to such 
                        individual under section 213 of the Social 
                        Security Act and the date as of which such 
                        records may be considered accurate, and
                            (ii) the number for toll-free access by 
                        telephone established by the Commissioner 
                        pursuant to subparagraph (A).

SEC. 4. ADJUSTMENTS TO PRIMARY INSURANCE AMOUNTS UNDER PART A OF TITLE 
              II OF THE SOCIAL SECURITY ACT.

    (a) In General.--Section 215 of the Social Security Act (42 U.S.C. 
415) is amended by adding at the end the following new subsection:

  ``Adjustment of Primary Insurance Amount of Eligible Employees and 
            Eligible Self-Employed Individuals Under Part B

    ``(j)(1) Except as provided in paragraph (3), in the case of an 
individual who is--
            ``(A) an eligible employee, as defined under paragraph 
        (3)(A) of section 255 without regard to paragraph (3)(B) of 
        such section, or
            ``(B) an eligible self-employed individual, as defined 
        under paragraph (4)(A) of section 255 without regard to 
        paragraph (4)(B) of such section,
such individual's primary insurance amount as determined in accordance 
with this section (before adjustments made under subsection (i)) shall 
be equal to 50 percent of the amount which would be so determined if 
this subsection did not apply.
    ``(2) Except as provided in paragraph (3), in the case of an 
individual who is--
            ``(A) an eligible employee as defined in paragraph (3) of 
        section 255 solely by reason of an election under paragraph 
        (3)(B) of such section, or
            ``(B) an eligible self-employed individual as defined in 
        paragraph (4) of section 255 solely by reason of an election 
        under paragraph (4)(B) of such section,
such individual's primary insurance amount as determined in accordance 
with this section (before adjustments made under subsection (i)) shall 
be equal to the product derived by multiplying--
            ``(i) the amount which would be so determined if this 
        subsection did not apply, by
            ``(ii) the applicable percentage determined under the 
        following table:

        ``If the number of such individual's
                                                                       
          quarters of coverage (within the
                                                                       
          meaning of section 213(a)(2)) as of
                                                         The applicable
          January 1, 1997, is:
                                                         percentage is:
                Less than 21.........................       50 percent.
                More than 20 but less than 61........       60 percent.
                More than 60 but less than 101.......       70 percent.
                More than 100 but less than 141......       80 percent.
                More than 141........................       90 percent.
    ``(3)(A) In the case of an individual who is an eligible employee 
as defined in paragraph (3) of section 255 or an eligible self-employed 
individual as defined in paragraph (4) of section 255 becomes entitled 
to disability insurance benefits under section 223, such individual's 
primary insurance amount shall be determined without regard to 
paragraphs (1) and (2).
    ``(B) Effective upon the attainment by an individual described in 
subparagraph (A) of retirement age (as defined in section 216(l)(1)), 
such individual's primary insurance amount as determined in accordance 
with this section (before subsequent adjustments made under subsection 
(i)) shall be equal the product derived by multiplying--
            ``(i) the amount which would be so determined if this 
        subsection did not apply, by
            ``(ii) the applicable percentage determined under the 
        following table:

        ``If the number of such individual's
                                                                       
          quarters of coverage (within the
                                                                       
          meaning of section 213(a)(2)) as of
                                                                       
          the date on which such individual
                                                         The applicable
          attains normal retirement age is:
                                                         percentage is:
                Less than 9..........................     100 percent. 
                More than 8 but less than 21.........      90 percent. 
                More than 20 but less than 61........      80 percent. 
                More than 60 but less than 101.......      70 percent. 
                More than 100 but less than 141......      60 percent. 
                More than 140........................     50 percent.''
    (b) Conforming Amendment to Railroad Retirement Act of 1974.--
Section 1 of the Railroad Retirement Act of 1974 (45 U.S.C. 231) is 
amended by adding at the end the following:
    ``(s) In applying applicable provisions of the Social Security Act 
for purposes of determining the amount of the annuity to which an 
individual is entitled under this Act, such individual shall not be 
treated as an `eligible individual' as defined in section 253(4) of the 
Social Security Act.''
    (c) Effective Date.--The amendments made by this section shall 
apply with respect to months after December 1996.

SEC. 5. TAX TREATMENT OF SOCIAL SECURITY INDIVIDUAL RETIREMENT 
              ACCOUNTS.

    (a) In General.--Subpart A of part I of subchapter D of chapter 1 
of the Internal Revenue Code of 1986 (relating to pension, profit-
sharing, stock bonus plans, etc.) is amended by inserting after section 
408 the following new section:

``SEC. 408A. SOCIAL SECURITY INDIVIDUAL RETIREMENT ACCOUNTS.

    ``(a) General Rule.--A social security individual retirement 
account shall be treated under this title in the same manner as any 
individual retirement plan, except to the extent otherwise provided in 
this section.
    ``(b) Social Security Individual Retirement Account.--For purposes 
of this title, the term `social security individual retirement account' 
means an individual retirement account (as defined in section 408(a)) 
which is administered or issued by a bank (as defined in section 
408(n)) under terms which restrict deposits to prescribed social 
security contributions made to the account pursuant to section 251 or 
253 of the Social Security Act and transfers made to the account 
pursuant to section 254 of such Act.
    ``(c) Tax Treatment of Distributions.--For purposes of this title--
            ``(1) Exclusion for qualified distributions.--
                    ``(A) In general.--In the case of a qualified 
                distribution from a social security individual 
                retirement account, the amount of such distribution 
                shall not be includable in gross income.
                    ``(B) Qualified distribution.--For purposes of 
                subparagraph (A), the term `qualified distribution' 
                means any distribution made on or after the date on 
                which the individual attains retirement age (as defined 
                in section 216(l)(1) of the Social Security Act).
            ``(2) Penalty for nonqualified distributions.--In the case 
        of a distribution not subject to paragraph (1), section 72(t) 
        shall be applied--
                    ``(A) by substituting `50 percent' for `10 percent' 
                in paragraph (1) thereof, and
                    ``(B) without regard to paragraph (2) thereof.
            ``(3) Rollovers.--Section 408(d)(3)(A)(i) shall apply to 
        any amount distributed from a social security individual 
        retirement account only to the extent such amount is paid into 
        another such account for the benefit of the individual for whom 
        the account from which such amount is transferred was 
        maintained.''
    (b) Clerical Amendment.--The table of sections for such subpart A 
is amended by inserting after the item relating to section 408 the 
following new item:

                              ``Sec. 408A. Social security individual 
                                        retirement accounts.''
    (c) Effective Date.--The amendments made by this section shall 
apply to taxable years beginning after December 31, 1996.
                                 <all>
HR 2971 IH----2
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