I 
108TH CONGRESS 
2D SESSION 
H. R. 3821
To amend title II of the Social Security Act to provide for individual security 
accounts funded by employee and employer Social Security payroll deduc-
tions, to extend the solvency of the old-age, survivors, and disability 
insurance program, and for other purposes. 
IN THE HOUSE OF REPRESENTATIVES 
FEBRUARY 24, 2004
Mr. KOLBE (for himself and Mr. STENHOLM) introduced the following bill; 
which was referred to the Committee on Ways and Means, and in addi-
tion to the Committee on Rules, for a period to be subsequently deter-
mined by the Speaker, in each case for consideration of such provisions 
as fall within the jurisdiction of the committee concerned 
A BILL 
To amend title II of the Social Security Act to provide 
for individual security accounts funded by employee and 
employer Social Security payroll deductions, to extend 
the solvency of the old-age, survivors, and disability in-
surance program, and for other purposes.
Be it enacted by the Senate and House of Representa-
tives of the United States of America in Congress assembled, 
SECTION 1. SHORT TITLE AND TABLE OF CONTENTS. 
(a) SHORT TITLE.—This Act may be cited as the 
‘‘Bipartisan Retirement Security Act of 2004’’.
(b) TABLE OF CONTENTS.—The table of contents is 
as follows:
Sec. 1. Short title and table of contents. 
Sec. 2. Individual security accounts. 
Sec. 3. Minimum social security benefit. 
Sec. 4. Reduction in the amount of certain transfers to medicare trust fund. 
Sec. 5. Revised formula for average indexed monthly earnings. 
Sec. 6. Actuarial adjustment for retirement. 
Sec. 7. CPI overstatement. 
Sec. 8. Adjustments to bend points in determining primary insurance amounts. 
Sec. 9. Adjustment to benefit formula factors. 
Sec. 10. Modification to PIA formula to reflect changes to life expectancy. 
Sec. 11. Treatment of disabled beneficiaries. 
Sec. 12. Maintenance of benefit and contribution base. 
Sec. 13. Acceleration of increase in social security eligibility age. 
Sec. 14. Mechanism for remedying unforeseen deterioration in social security 
solvency. 
Sec. 15. Increase in widow’s and widower’s insurance benefits. 
Sec. 16. Limitation on benefits of married couple to level of maximum worker 
benefits.
SEC. 2. INDIVIDUAL SECURITY ACCOUNTS. 
(a) ESTABLISHMENT AND MAINTENANCE OF INDI-
VIDUAL SECURITY ACCOUNTS.—
(1) IN GENERAL.—Title II of the Social Secu-
rity Act (42 U.S.C. 401 et seq.) is amended—
(A) by inserting before section 201 the fol-
lowing: 
‘‘PART A—INSURANCE BENEFITS’’; 
and 
(B) by adding at the end the following: 
‘‘PART B—INDIVIDUAL SECURITY SYSTEM 
‘‘Subpart 1—Individual Security Accounts 
‘‘FEDERALLY-ADMINISTERED INDIVIDUAL SECURITY 
ACCOUNT 
‘‘SEC. 251. (a) ESTABLISHMENT.—
‘‘(1) IN GENERAL.—Within 30 days after re-
ceiving the first contribution under subsection (b) 
with respect to an eligible individual, the Commis-
sioner of Social Security shall establish an individual 
security account for such individual in the Individual 
Security Fund. Each account shall be identified to 
its account holder by means of the account holder’s 
social security account number. 
‘‘(2) ELIGIBLE INDIVIDUAL.—For purposes of 
this part, the term ‘eligible individual’ means any in-
dividual born after December 31, 1949. 
‘‘(b) CONTRIBUTIONS.—
‘‘(1) IN
GENERAL.—The Secretary of the 
Treasury shall transfer from the Federal Old-Age 
and Survivors Insurance Trust Fund, for crediting 
by the Commissioner of Social Security to the indi-
vidual security account of an eligible individual, an 
amount equal to the sum of any amount received by 
such Secretary on behalf of such individual under 
section 3101(a)(2) or 1401(a)(2) of the Internal 
Revenue Code of 1986. 
‘‘(2) OTHER CONTRIBUTIONS.—For provisions 
relating to additional contributions credited to indi-
vidual security accounts, see sections 54(d) and 
6402(l) of the Internal Revenue Code of 1986.
‘‘(c) CREDITING REQUIREMENTS.—Except as other-
wise provided in section 252, contributions under sub-
section (b) on behalf of an eligible individual shall be cred-
ited—
‘‘(1) to the individual security account estab-
lished for such individual under subsection (a); and 
‘‘(2) in accordance with the allocation in effect 
with respect to such individual under subsection (d). 
‘‘(d) ALLOCATION AND OTHER DESIGNATIONS.—
‘‘(1) IN GENERAL.—The Commissioner of So-
cial Security shall prescribe regulations in accord-
ance with which any eligible individual who is em-
ployed or self-employed may designate—
‘‘(A) in the event that 2 or more invest-
ment options are available in the Individual Se-
curity Fund—
‘‘(i) the option or options to which 
such individual wishes to have such indi-
vidual’s contributions under subsection (b) 
credited; and 
‘‘(ii) if such individual designates 
more than 1 option under clause (i), how 
such individual wishes for those contribu-
tions to be allocated; and
‘‘(B) the amount of wages or self-employ-
ment income such individual wishes to des-
ignate for purposes of section 3101(a)(2)(C) or 
1401(a)(2)(C) of the Internal Revenue Code of 
1986 (as applicable), if any. 
‘‘(2) DEFAULT ALLOCATION.—In the absence of 
a required designation under paragraph (1)(A), con-
tributions on behalf of the individual involved shall 
be allocated in such manner as the Commissioner of 
Social Security shall prescribe, taking into account 
the competing objectives of maximizing returns on 
investments and minimizing the risk involved with 
such investments. 
‘‘(3) FORM OF DESIGNATION.—Any designation 
under paragraph (1) shall be made in such manner 
and at such intervals as the Commissioner of Social 
Security may prescribe in order to ensure ease of ad-
ministration and to avoid creating an undue burden 
on employers. 
‘‘(4) SPECIAL RULE FOR 2006.—Not later than 
January 1, 2006, any eligible individual who is em-
ployed or self-employed as of such date shall execute 
all designations required under paragraph (1). 
‘‘(e) PERIODIC STATEMENTS TO ACCOUNT HOLD-
ER.—
‘‘(1) IN
GENERAL.—The Individual Security 
Fund Board shall prescribe regulations under which 
each individual for whom an individual security ac-
count is maintained under this section shall be fur-
nished with—
‘‘(A) a periodic statement relating to the 
individual’s account, including, for any report-
ing period as of the end of which the individ-
ual’s account balance is at least equal to the 
minimum balance amount (within the meaning 
of section 252), clear and conspicuous notice to 
that effect; 
‘‘(B) a summary description of any invest-
ment options or other choices which may be 
available to such individual under this section 
or under section 252 (as applicable); and 
‘‘(C) any forms and information necessary 
to make a designation under subsection (d) or 
section 252 (as applicable). 
‘‘(2) INFORMED
DECISIONMAKING.—All infor-
mation, materials, and other matter furnished under 
this subsection shall be furnished to the account 
holder at such times and in such manner as the 
Board considers appropriate in order to permit in-
formed decisionmaking.
‘‘PRIVATELY-ADMINISTERED INDIVIDUAL SECURITY 
ACCOUNT 
‘‘SEC. 252. (a) DEFINITIONS.—For purposes of this 
part—
‘‘(1) MINIMUM DEPOSIT AMOUNT.—
‘‘(A) IN GENERAL.—The term ‘minimum 
deposit amount’ means an amount equal to 
$7,500, as adjusted under subparagraph (B). 
‘‘(B) ADJUSTMENT.—The Secretary of the 
Treasury shall adjust annually (effective for pe-
riods beginning after December 2003) the dol-
lar amount set forth in subparagraph (A) under 
procedures providing for adjustments in the 
same manner and to the same extent as adjust-
ments are provided for under the procedures 
used to adjust benefit amounts under section 
215(i)(2)(A), except that any amount so ad-
justed that is not a multiple of $10 shall be 
rounded to the nearest multiple of $10. 
‘‘(2) FEDERALLY-ADMINISTERED
INDIVIDUAL 
SECURITY ACCOUNT.—The term ‘Federally-adminis-
tered individual security account’ means an indi-
vidual security account maintained, in accordance 
with applicable provisions of this part, in the Indi-
vidual Security Fund.
‘‘(3) PRIVATELY-ADMINISTERED
INDIVIDUAL 
SECURITY ACCOUNT.—The term ‘privately-adminis-
tered individual security account’ means an indi-
vidual security account maintained, in accordance 
with applicable provisions of this part, by a certified 
institution. 
‘‘(4) CERTIFIED INSTITUTION.—The term ‘cer-
tified institution’ refers to an investment firm, credit 
union, insurance company, or other certified institu-
tion under subpart 3. 
‘‘(b) OPTION TO DESIGNATE A PRIVATELY-ADMINIS-
TERED INDIVIDUAL SECURITY ACCOUNT.—
‘‘(1) IN
GENERAL.—Under regulations pre-
scribed by the Individual Security Fund Board, 
whenever the balance in an individual’s Federally-
administered individual security account is at least 
equal to the minimum deposit amount, such indi-
vidual shall be eligible to designate a privately-ad-
ministered individual security account (established 
and maintained on such individual’s behalf) to serve 
as such individual’s individual security account 
under this part, in lieu of such individual’s Feder-
ally-administered individual security account. 
‘‘(2) EFFECT
OF
DESIGNATION.—If an indi-
vidual makes a designation under paragraph (1)—
‘‘(A) the entire balance in the individual’s 
Federally-administered individual security ac-
count shall be promptly transferred to the pri-
vately-administered individual security account 
specified by such individual in such designation; 
and 
‘‘(B) that privately-administered individual 
security account shall, for all purposes, be 
treated as the electing individual’s individual se-
curity account, subject to paragraph (4). 
‘‘(3) REGULATORY MANAGEMENT OF PRIVATE 
INVESTMENT.—A designation under this subsection 
shall not be effective unless it is made in such time, 
form, and manner as the Individual Security Fund 
Board prescribes. The Individual Security Fund 
Board shall—
‘‘(A) maintain individual account records, 
and 
‘‘(B) combine account transactions with 
certified institutions maintaining privately-ad-
ministered individual security accounts in ag-
gregate amounts, 
in the same manner as is applicable with respect to 
records and account transactions with respect to 
Federally administered individual security accounts.
‘‘(4) SUBSEQUENT DESIGNATIONS.—The Indi-
vidual Security Fund Board shall provide by regula-
tion opportunity for subsequent designation, from 
time to time, of another individual security account 
in lieu of the account previously designated under 
this section, subject to the following: 
‘‘(A) OPTIONS
AVAILABLE.—The account 
designated under this paragraph may be either 
within—
‘‘(i) another certified institution, sub-
ject to subparagraph (B); or 
‘‘(ii) the Individual Security Fund. 
‘‘(B) MINIMUM
BALANCE.—In order to 
make a designation referred to in subparagraph 
(A)(i), the balance in the individual’s individual 
security account must be at least equal to the 
minimum deposit amount. No minimum balance 
requirement under this subparagraph shall 
apply in the case of a designation referred to in 
subparagraph (A)(ii). 
‘‘(C) ONLY 1 ACCOUNT
PERMITTED
AT 
ANY
TIME.—An individual may not, at any 
time, concurrently maintain—
‘‘(i) a privately-administered indi-
vidual security account with each of 2 or 
more certified institutions; or 
‘‘(ii) a privately-administered and a 
Federally-administered individual security 
account. 
‘‘(D) EFFECT.—A designation under this 
paragraph has (with respect to the individual’s 
respective accounts, before and after such des-
ignation) the same effect as results following a 
designation under paragraph (2) (with respect 
to the Federally-administered and privately-ad-
ministered accounts involved). 
‘‘DISTRIBUTIONS FROM INDIVIDUAL SECURITY ACCOUNTS 
‘‘SEC. 253. (a) DATE
OF EARLIEST DISTRIBU-
TION.—Except as provided in subsection (c), distributions 
may not be made from the Federally-administered or pri-
vately-administered individual security account of an eligi-
ble individual (as the case may be) before the earlier of—
‘‘(1) the date the eligible individual attains nor-
mal retirement age, as determined under section 216 
(or early retirement age, as so determined, if elected 
by such individual), or 
‘‘(2) the date on which funds in the eligible in-
dividual’s account are sufficient to provide a month-
ly payment over the life expectancy of the eligible in-
dividual (determined under reasonable actuarial as-
sumptions) which, when added to the eligible individ-
ual’s monthly benefit under part A (if any), is at 
least equal to an amount equal to 1⁄12 of 185 percent 
of the poverty line (as defined in section 673(2) of 
the Community Services Block Grant Act (42 U.S.C. 
9902(2) and determined on such date for a family 
of the size involved) and adjusted annually there-
after by the adjustment determined under section 
215(i). 
‘‘(b) FORMS OF DISTRIBUTION.—
‘‘(1) REQUIRED MONTHLY PAYMENTS.—Except 
as provided in paragraph (2), beginning as of the 
date distributions begin to be made in accordance 
with subsection (a), the balance in the individual se-
curity account available to provide monthly pay-
ments not in excess of the amount described in sub-
section (a)(2) shall be paid, as elected by the ac-
count holder (in such form and manner as shall be 
prescribed in regulations of the Individual Security 
Fund Board or the Securities and Exchange Com-
mission, as applicable), by means of the purchase of 
annuities or equal monthly payments over the life 
expectancy of the eligible individual (determined 
under reasonable actuarial assumptions) in accord-
ance with requirements (which shall be provided in 
regulations of the Board or Commission, as applica-
ble) similar to the requirements applicable to pay-
ments of benefits under subchapter III of chapter 84 
of title 5, United States Code. 
‘‘(2) PAYMENT OF EXCESS FUNDS.—To the ex-
tent funds remain in an eligible individual’s Feder-
ally-administered or privately-administered indi-
vidual security account (as the case may be) after 
the application of paragraph (1) and to the extent 
not inconsistent with the provisions of subchapter 
III of chapter 84 of title 5, United States Code, 
such funds shall be payable to the eligible individual 
in such manner and in such amounts as determined 
by the eligible individual. 
‘‘(c) DISTRIBUTION IN THE EVENT OF DEATH BE-
FORE THE DATE OF INITIAL DISTRIBUTION.—If the eligi-
ble individual dies before the date determined under sub-
section (a), the balance in such individual’s individual se-
curity account shall be distributed to the individual’s heirs 
under rules established by the Individual Security Fund 
Board or the Securities and Exchange Commission, as ap-
plicable.
‘‘Subpart 2—Individual Security Fund; Individual 
Security Fund Board 
‘‘INDIVIDUAL SECURITY FUND 
‘‘SEC. 261. There shall be established and maintained 
in the Treasury of the United States an Individual Secu-
rity Fund in the same manner as the Thrift Savings Fund 
under sections 8437 (excluding paragraphs (4) and (5) of 
subsection (c) thereof), 8438, and 8439 of title 5, United 
States Code. 
‘‘INDIVIDUAL SECURITY FUND BOARD 
‘‘SEC. 262. (a) ESTABLISHMENT.—There shall be es-
tablished and maintained in the Social Security Adminis-
tration an Individual Security Fund Board in the same 
manner as the Federal Retirement Thrift Investment 
Board under subchapter VII of chapter 84 of title 5, 
United States Code. 
‘‘(b) SPECIFIC INVESTMENT AND REPORTING DU-
TIES.—The Individual Security Fund Board shall manage 
and report on the activities of the Individual Security 
Fund and on Federally-administered individual security 
accounts in the same manner as the Federal Retirement 
Thrift Investment Board manages and reports on the 
Thrift Savings Fund and the individual accounts of such 
Fund under subchapter VII of chapter 84 of title 5, 
United States Code.
‘‘(c) BUDGETARY TREATMENT OF INDIVIDUAL SECU-
RITY FUND AND ACCOUNTS.—The receipts and disburse-
ments of the Individual Security Fund and any accounts 
within such Fund shall not be included in the totals of 
the budget of the United States Government as submitted 
by the President or of the congressional budget and shall 
be exempt from any general budget limitation imposed by 
statute on expenditures and net lending (budget outlays) 
of the United States Government. 
‘‘(d) COMMISSIONER OF SOCIAL SECURITY AS EXEC-
UTIVE DIRECTOR.—The Commissioner of Social Security 
shall have, with respect to the Individual Security Fund 
and accounts within such Fund, the same duties and re-
sponsibilities as does the Executive Director (appointed 
under section 8474(a) of title 5, United States Code) with 
respect to the Thrift Savings Fund and accounts within 
such Fund. 
‘‘Subpart 3—Certified Institutions 
‘‘CERTIFICATION OF INSTITUTIONS BY SECURITIES AND 
EXCHANGE COMMISSION 
‘‘SEC. 271. (a) IN GENERAL.—For purposes of this 
part, any institution that is engaged, in a fiduciary capac-
ity, in the business of maintaining accounts for individuals 
for purposes of investment may apply to the Securities and 
Exchange Commission (in such form and manner as the
‘‘(b) JUDICIAL REVIEW.—Any party to any involun-
tary revocation proceeding under this section to which an 
institution is a party may obtain a review of any order 
served pursuant to this section by the filing in the court 
of appeals of the United States for the circuit in which 
the home office of the institution is located, or in the 
United States Court of Appeals for the District of Colum-
bia Circuit, within 30 days after the date of service of such 
order, a written petition praying that the order of the 
Commission be modified, terminated, or set aside. A copy 
of such petition shall be forthwith transmitted by the clerk 
of the court to the Commission, and thereupon the Com-
mission shall file in the court the record in the proceeding, 
as provided in section 2112 of title 28, United States 
Code. Upon the filing of such petition, such court shall 
have jurisdiction, which upon the filing of the record shall 
be exclusive, to affirm, modify, terminate, or set aside, in 
whole or in part, the order of the Commission. Review of 
such proceedings shall be had as provided in chapter 7 
of title 5, United States Code. The judgment and decree 
of the court shall be final, except that the judgment and 
decree shall be subject to review by the Supreme Court 
upon certiorari, as provided in section 1254 of title 28, 
United States Code. The commencement of proceedings 
for judicial review under this subsection shall not, unless
covered under such part shall be deemed to be references 
to the trustee of the privately-administered individual se-
curity account. 
‘‘(c) LIMITATION ON LIABILITY.—Any account holder 
who issues an instruction to the trustee of the account 
directing an investment of funds held in the account shall 
sign an acknowledgement prescribed by the Securities and 
Exchange Commission which states that the account hold-
er understands that an investment of any amount in the 
account is made at the account holder’s risk, that the ac-
count holder is not protected by the Government or by 
the trustee against any loss on such investment, and that 
a return on such investment is not guaranteed by the Gov-
ernment or by the trustee. Notwithstanding the preceding 
provisions of this section and any other provision of Fed-
eral or State law, the trustee of a privately-administered 
individual security account shall not be liable for losses 
suffered in connection with any investment of assets held 
in the account unless it is shown by clear and convincing 
evidence that the trustee did not act in the manner in 
which a reasonable trustee would act under the cir-
cumstances then prevailing in evaluating the risk and re-
ward properties of the investment option involved.
‘‘Subpart 4—Enforcement 
‘‘CAUSE OF ACTION 
‘‘SEC. 281. The account holder with respect to a pri-
vately-administered individual security account who is ad-
versely affected by an act or practice of any party (other 
than the Securities and Exchange Commission, the Social 
Security Administration, the Department of the Treasury, 
or any officer or employee of any of the foregoing) in viola-
tion of any provision of this part, may bring an action—
‘‘(1) to enjoin such act or practice, or 
‘‘(2) to obtain other appropriate equitable relief 
(A) to redress such violation or (B) to enforce such 
provision. 
‘‘JURISDICTION AND VENUE 
‘‘SEC. 282. Civil actions under this subpart may be 
brought in the district courts of the United States in the 
district where the privately-administered individual secu-
rity account is administered, where the violation took 
place, or where a defendant resides or may be found, and 
process may be served in any district where a defendant 
resides or may be found. The district courts of the United 
State shall have jurisdiction, without regard to the amount 
in controversy or the citizenship of the parties, to grant 
the relief provided for in section 281 in any action.
‘‘RIGHT OF SECURITIES AND EXCHANGE COMMISSION TO 
INTERVENE 
‘‘SEC. 283. A copy of the complaint or notice of ap-
peal in any action under this subpart shall be served upon 
the Securities and Exchange Commission by certified mail. 
The Commission shall each have the right to intervene in 
any action. 
‘‘AWARDS OF COSTS AND EXPENSES 
‘‘SEC. 284. In any action brought under this subpart, 
the court in its discretion may award all or a portion of 
the costs and expenses incurred in connection with such 
action, including reasonable attorney’s fees, to any party 
who prevails or substantially prevails in such action. 
‘‘LIMITATION ON ACTIONS 
‘‘SEC. 285. (a) IN GENERAL.—Except as provided in 
subsection (c), an action under this subpart may not be 
brought after the later of—
‘‘(1) 6 years after the date on which the cause 
of action arose, or 
‘‘(2) 3 years after the applicable date specified 
in subsection (b). 
‘‘(b) APPLICABLE DATE.—The applicable date speci-
fied in this subsection is the earliest date on which the 
plaintiff acquired or should have acquired actual knowl-
edge of the existence of such cause of action.
‘‘(c) CASES OF FRAUD OR CONCEALMENT.—In the 
case of fraud or concealment, the period described in sub-
section (a)(2) shall be extended to 6 years after the appli-
cable date specified in subsection (b). 
‘‘PENALTY FOR FAILURE TO TIMELY PROVIDE REQUIRED 
INFORMATION 
‘‘SEC. 286. The Securities and Exchange Commission 
may assess a penalty, payable to it, against any person 
who fails to provide any notice or other material informa-
tion required under this part or any regulations prescribed 
under this part within the applicable time limit specified 
therein. Such penalty shall not exceed $1,000 for each day 
for which such failure continues. 
‘‘ACTIONS BY SECURITIES AND EXCHANGE COMMISSION 
‘‘SEC. 287. If any person is assessed under this sub-
part and fails to pay the assessment when due, or any 
person otherwise fails to meet any requirement of this 
part, the Securities and Exchange Commission may bring 
a civil action in any district court of the United States 
within the jurisdiction of which such person’s assets are 
located or in which such person resides or is found for 
the recovery of the amount of the assessment or for appro-
priate equitable relief to redress the violation or enforce 
the provisions of this part, and process may be served in 
any other district. The district courts of the United States 
shall have jurisdiction over actions brought under this sec-
tion by the Commission without regard to the amount in 
controversy. 
‘‘CRIMINAL PENALTY FOR FRAUD OR INTENTIONAL MIS-
REPRESENTATION
IN
CONNECTION
WITH
INVEST-
MENT OPTIONS 
‘‘SEC. 288. Any person who makes, or causes to be 
made, a statement or representation of a material fact for 
use in selecting an investment option that the person 
knows or should know is false or misleading or knows or 
should know omits a material fact or makes such a state-
ment with knowing disregard for the truth shall upon con-
viction be fined not more than $500,000 or imprisoned 
for not more than 5 years, or both.’’. 
(b) MODIFICATION OF FICA RATES.—
(1) EMPLOYEES.—Section 3101(a) of the Inter-
nal Revenue Code of 1986 (relating to tax on em-
ployees) is amended to read as follows: 
‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR-
ANCE.—
‘‘(1) IN GENERAL.—
‘‘(A) INDIVIDUALS COVERED UNDER PART 
A OF TITLE II OF THE SOCIAL SECURITY ACT.—
In addition to other taxes, there is hereby im-
posed on the income of every individual who is 
not a part B eligible individual a tax equal to
6.2 percent of the wages received by him with 
respect to employment. 
‘‘(B) INDIVIDUALS COVERED UNDER PART 
B
OF
TITLE II OF
THE
SOCIAL
SECURITY 
ACT.—
‘‘(i) IN
GENERAL.—In addition to 
other taxes, there is hereby imposed on the 
income of every part B eligible individual a 
tax equal to the applicable percentage of 
the wages received by such individual with 
respect to employment. 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the term ‘applicable 
percentage’ means the excess of 6.2 per-
cent, over 
‘‘(I) 3 percent, in the case of the 
first $10,000 of such wages received 
in the calendar year, and 
‘‘(II) 2 percent, in the case of 
any additional such wages received in 
the calendar year. 
‘‘(2) CONTRIBUTION OF OASDI TAX REDUCTION 
TO INDIVIDUAL SECURITY ACCOUNTS.—In addition 
to other taxes, there is hereby imposed on the in-
come of every part B eligible individual for the cal-
endar year an individual security account contribu-
tion equal to the sum of—
‘‘(A) 3 percent of so much of the wages as 
does not exceed the first $10,000 received in 
such calendar year by such individual with re-
spect to employment, 
‘‘(B) 2 percent of the excess of—
‘‘(i) such wages, over 
‘‘(ii) the wages taken into account 
under subparagraph (A), plus 
‘‘(C) so much of such wages (not to exceed 
$5,000) as designated by the individual in the 
same manner as described in section 251(c) of 
the Social Security Act. 
‘‘(3) INFLATION ADJUSTMENTS.—
‘‘(A) IN GENERAL.—In the case of any cal-
endar year beginning after 2006, the $10,000 
amount in paragraphs (1) and (2) shall be in-
creased by an amount equal to—
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the wage increase percentage (if 
any) for such year. 
‘‘(B) DESIGNATED
CONTRIBUTIONS.—In 
the case of any calendar year beginning after
2008, the $5,000 amount in paragraph (2)(C) 
shall be increased by an amount equal to—
‘‘(i) such dollar amount, multiplied by 
‘‘(ii) the percentage increase (if any) 
for such year determined under section 
215(i) of the Social Security Act. 
‘‘(C) ROUNDING.—If any dollar amount 
after being increased under subparagraph (A) 
or (B) is not a multiple of $10, such dollar 
amount shall be rounded to the nearest multiple 
of $10. 
‘‘(4) DEFINITIONS.—For purposes of this sub-
section—
‘‘(A) WAGES.—The term ‘wages’ shall have 
the meaning given to such term by section 
3121(a). 
‘‘(B) EMPLOYMENT.—The term ‘employ-
ment’ shall have the meaning given to such 
term by section 3121(b). 
‘‘(C) WAGE INCREASE PERCENTAGE.—The 
term ‘wage increase percentage’, with respect to 
a calendar year, means the percentage increase 
which would become effective under section 
215(i)(2) of the Social Security Act in such
year if such increase were determined as de-
scribed in section 215(i)(5)(A)(i) of such Act.’’. 
(2) SELF-EMPLOYED.—Section 1401(a) of the 
Internal Revenue Code of 1986 (relating to tax on 
self-employment income) is amended to read as fol-
lows: 
‘‘(a) OLD-AGE, SURVIVORS, AND DISABILITY INSUR-
ANCE.—
‘‘(1) IN GENERAL.—
‘‘(A) INDIVIDUALS COVERED UNDER PART 
A OF THE SOCIAL SECURITY ACT.—In addition 
to other taxes, there shall be imposed for each 
taxable year, on the self-employment income of 
every individual who is not a part B eligible in-
dividual for the calendar year ending with or 
during such taxable year, a tax equal to 12.40 
percent of the amount of the self-employment 
income for such taxable year. 
‘‘(B) INDIVIDUALS COVERED UNDER PART 
B OF TITLE II OF THE SOCIAL SECURITY ACT.—
‘‘(i) IN
GENERAL.—In addition to 
other taxes, there is hereby imposed for 
each taxable year, on the self-employment 
income of every part B eligible individual, 
a tax equal to the applicable percentage of
the amount of the self-employment income 
for such taxable year. 
‘‘(ii) APPLICABLE PERCENTAGE.—For 
purposes of clause (i), the term ‘applicable 
percentage’ means the excess of 12.4 per-
cent, over 
‘‘(I) 3 percent, in the case of the 
first $10,000 of self-employment in-
come received in the calendar year, 
and 
‘‘(II) 2 percent, in the case of 
any additional self-employment income 
received in the calendar year. 
‘‘(2) CONTRIBUTION OF OASDI TAX REDUCTION 
TO INDIVIDUAL SECURITY ACCOUNTS.—In addition 
to other taxes, there is hereby imposed for each tax-
able year, on the self-employment income of every 
part B eligible individual for the calendar year, an 
individual security account contribution equal to the 
sum of—
‘‘(A) 3 percent of self-employment income 
as does not exceed the first $10,000 of such in-
come derived during the taxable year by such 
individual,
B eligible individual in the same manner as de-
scribed in section 251(c) of the Social Security Act. 
‘‘(d) CREDIT USED ONLY FOR INDIVIDUAL SECU-
RITY ACCOUNT.—For purposes of this title, the credit al-
lowed under this section with respect to any part B eligible 
individual—
‘‘(1) shall not be treated as a credit allowed 
under this part, but 
‘‘(2) shall be treated as an overpayment of tax 
under section 6401(b)(3) which may, in accordance 
with section 6402(l), only be transferred to an indi-
vidual security account established under part B of 
title II of the Social Security Act with respect to 
such individual.’’. 
(2) CONTRIBUTION OF EITC AMOUNTS TO INDI-
VIDUAL SECURITY ACCOUNTS.—Section 32 of such 
Code (relating to earned income) is amended by add-
ing at the end the following new subsection: 
‘‘(n) CONTRIBUTION TO INDIVIDUAL SECURITY AC-
COUNT.—
‘‘(1) IN
GENERAL.—An eligible part B indi-
vidual who is allowed a credit under this section may 
designate all or a portion of such credit as a con-
tribution to the individual security account estab-
lished on behalf of such individual.