Securing Future Retirees
A proposal before Congress would require the Social Security Administration to do the politically unthinkable—consider at least partially privatizing the system. Rep. John Porter (R.–Ill.) has sponsored HR 3083, which would remove current Social Security surpluses from budget deficit calculations and force the SSA to study investing Social Security surpluses in the private sector.
Porter wants to improve the prospects for future retirees as fewer workers pay Social Security taxes and more elderly Americans demand benefits. His eventual goal is to allow workers to make Social Security payments into their own private retirement accounts, while simultaneously reducing their claims on the Social Security system.
The federal government has been using current Social Security surpluses to offset the overall budget deficit. Last year alone, the Social Security surpluses reduced the federal deficit by $56 billion. This practice is scheduled to end in fiscal 1993, but Porter's bill would stop it now.
The bill also requires the SSA to conduct a study to recommend "redirection of FICA and SECA taxes to individual retirement accounts or annuities or other retirement income arrangements." From these recommendations, Porter plans to propose legislation that would permit each worker paying Social Security taxes to own his or her contributions. Workers would each establish an Individual Social Security Retirement Account (ISSRA), which would receive their accumulated payroll taxes.
Each year, Porter says, "we would 'refund' into workers' ISSRAs the portion of their FICA taxes not needed to cover current retirement benefits, and [reduce] each worker's claim on the Social Security Trust Fund accordingly.…By 2050, the new system would be completely vested and funded." Individuals could invest the accumulated funds in a variety of public or private savings choices.
This is not a voluntary retirement program; it is a forced savings plan. Workers and employers must pay into the system. But Robert Gustafson, Porter's legislative assistant, said that "the basis of the plan is that all people who put money in [the Social Security system] will get the same benefits they are promised" when they enter the workforce.
Those who support privately investing Social Security taxes assert that it would boost the economy and offer future retirees a better deal than Social Security promises. Harvard economist Martin Feldstein estimates that investing all Social Security taxes in the private sector would increase GNP by 19 percent. Attorney Peter Ferrara, who has written extensively about Social Security, has calculated that a minimum-wage worker investing in a private retirement plan would earn twice Social Security's current payout.
Even though Porter says his proposal has received wide support outside Congress, so far HR 3083 has only four cosponsors. Gustafson reports that the bill has been presented to the House Ways and Means Committee. He hopes hearings will take place before the end of the year.
This article originally appeared in print under the headline "Securing Future Retirees".