NCPA - National Center for Policy Analysis

Beware Some Social Security "Privatization" Plans

December 7, 1998

Some analysts are warning that not all plans to "privatize" Social Security deserve that description. For example, having the government continue to hold trust funds and invest them in the stock market -- creating a so-called "national 401(k)" fund -- would be the opposite of privatization. True privatization would mean allowing individuals to use their payroll taxes to establish their own trust accounts and manage them.

Here are some of the alternatives being discussed and their pitfalls:

  • The national 401(k) plan would, for the first time, invite the federal government into the stock market and allow it to pick and choose among shares of politically correct companies.
  • There are suggestions afoot to have the federal government "guarantee" funds through a bail-out if the market experienced a devastating drop.
  • Or in the more likely event of market prosperity, the fund would be a tempting target for a political raid to obtain money for greater government spending.
  • Doing away with the current $68,400 cap on income subjected to payroll taxes would mean a tax increase for 10 million households -- effectively raising the top marginal tax rate from 41 percent to more than 47 percent, including Medicare.

Critics say that such high rates amount to the same sort of poison that has converted continental Europe into a job-free zone.

Source: Amity Shlaes, "Privatize Social Security? Not Like This," Wall Street Journal, December 7, 1998.


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