NCPA - National Center for Policy Analysis

Archer-Shaw Social Security Plan A Step In The Right Direction

May 28, 1999

The new Social Security reform proposal from Reps. Bill Archer (R-Texas) and Clay Shaw (R-Fla.) has a worthy goal, according to National Center for Policy Analysis President Dr. John C. Goodman: to secure future retirement benefits for today's young people without increasing taxes on workers or reducing benefits to retirees. To appreciate the plan's importance, Goodman says, consider what will happen if we do nothing.

  • By 2045, the payroll tax needed to pay Social Security benefits will nearly double to 20 percent of workers' wages.
  • With the cost of Medicare and other government health programs added in, taxes will take between one-third and one-half of everything workers earn.
  • That's one-half off the top before today's 21-year-olds build any roads, or pay the salaries of police or teachers.

Under the Archer plan, two percent of everyone's wages would be invested every year in a private investment account of stocks and bonds. Take home pay wouldn't go down, because the investment would be funded by a reduction in income taxes. Private investment accounts -- chosen from among 50 private investment firms -- would be required to invest in conservatively diversified portfolios.

The plan guarantees retirees' benefits. If the private investment is only enough to pay 80 percent of one's retirement benefit, the government will pay the remaining 20 percent.

The plan has one significant flaw, says Goodman: when individuals reach retirement age, they must turn their account balances over to the government, which will then send out their monthly checks. We can't trust Uncle Sam with all that money. Letting private annuities handle the job makes more sense.

Source: John C. Goodman (NCPA), "America's Retirees Will Have More To Spend If Archer-Shaw Social Security Bill Passes," Knight-Ridder Newspapers, May 19, 1999.

 

Browse more articles on Tax and Spending Issues