Arrow-right Camera


Plan Would Alter Social Security Americans Could Invest Payroll Taxes In Retirement Accounts

With confidence in Social Security waning, Congress is weighing legislation that would allow working Americans to invest some of their payroll taxes in private retirement accounts.

The plan, written by Sens. Alan Simpson, R-Wyo., and Bob Kerrey, D-Neb., would permit workers to invest about one-sixth of the Social Security taxes they and their employers now pay in a personal investment plan, similar to an Individual Retirement Account.

Simpson’s Senate Finance subcommittee on Social Security was told Wednesday that there are both risks and benefits to consumers from diverting even a small share of Social Security’s payroll taxes into private retirement funds.

Workers who invest wisely, witnesses told Simpson, could reap far greater returns at retirement than those who depend solely on Social Security. But, said other experts, not everyone will invest wisely. And the families of those who die early or become disabled could be pushed into poverty because of investments that do not have a chance to mature.

Under current law, workers and their employers each pay a Social Security tax of 6.2 percent on wages up to $61,200. The bill would allow an employee to divert 2 percentage points of those taxes.

The system takes in more than it spends each year on the nation’s 43 million retirees, disabled workers and survivors. But by 2013, Social Security will begin spending more than it collects in taxes and will be broke by 2030 unless restructured, according to the government’s projections.

Backers of Simpson’s plan say it begins to address the pending crisis of insolvency and a lack of confidence in the system, while increasing the retirement earnings of today’s working Americans.

Stephen J. Entin told Simpson that private savings plans “could easily deliver several times more retirement income for future workers than the projected benefits payable by a patched-up Social Security system.”

At a 7 percent real return, a dollar saved at age 20 would be worth $16 at age 60, and $32 at age 70, said Entin, resident scholar at the Institute for Research on the Economics of Taxation, a public policy research organization devoted to strengthening the free market.

Entin said the added savings would also boost capital formation, wages and employment.

But Social Security Commissioner Shirley Chater said in a statement that Congress should be finding ways to encourage private investments as a supplement to Social Security, and not as a substitute.

Chater said some people will invest wisely, avoid disability or early death, and realize a greater return on their investment than they would get from Social Security.

“But then again, many people would not,” said Chater.


Click here to comment on this story »