NCPA - National Center for Policy Analysis

GOP Social Security Plan: Less Than Meets The Eye?

May 3, 1999

Some analysts who are normally supportive of Republican initiatives are faulting the Social Security plan proposed by Rep. Bill Archer (R-Texas), chairman of the House Ways and Means Committee, and Rep. Clay Shaw (R-Fla.). Their objections center on a perceived huge increase in federal spending and high tax rates that would be levied on money in private accounts.

  • While the plan does establish personal retirement accounts, the federal government would make deposits of 2 percent of taxpayers' wages into the accounts, up to a maximum of $1,500 per year -- rather than allow workers to shift their payroll taxes to the accounts.
  • Critics say that once a taxpayer reaches retirement age, the government would impose a 100 percent tax rate on the funds.
  • That is because the government would take the balance in the individual's account to pay his or her Social Security benefits.
  • Critics object that taxpayers would continue to pay the 12.4 percent payroll tax to Social Security, but the government would take a big chunk of income taxes, redistribute the funds to savings accounts for the overall population -- and then use the interest and principal from the accounts to fund Social Security benefits.

They warn that a 21-year-old worker would need a real return of more than 10.7 percent on equity investments in order to come out ahead.

These critics claim that the Archer-Shaw plan is far worse than anything President Clinton has proposed.

Source: Daniel J. Mitchell (Heritage Foundation), "GOP Offers a Social Security Plan Worse Than Clinton's," Wall Street Journal, May 3, 1999; and Stuart M. Butler and David C. John, "Why The Archer-Shaw Proposal Is Not The Way To Reform Social Security," Executive Memorandum No. 594, May 3, 1999, Heritage Foundation, 214 Massachusetts Avenue, N.E., Washington D.C. 20002, (202) 546- 4400.

 

Browse more articles on Tax and Spending Issues