Social Security Personal Accounts: Prosperity for All
July 8, 2013
In 2010, Social Security began running a cash deficit that will continue until 2033, when the Social Security trust funds run out of money. To pay for all of the promised Social Security and Medicare benefits would require almost doubling the current total payroll tax of 15.3 percent to nearly 30 percent, says Peter Ferrara, a senior fellow with the National Center for Policy Analysis and the Heartland Institute.
Social Security reform has already worked in the United States.
- In 1981, public-sector workers employed by Galveston County, Texas, voted to opt out of Social Security into a new defined-contribution plan under a provision of federal law that allowed state and local government workers to make this choice.
- The following year, Matagorda and Brazoria counties voted to join them.
- Under the plan, 9.737 percent of a worker's salary is contributed and goes to First Financial Benefits of Houston, which then lends the money long-term to top-rated financial institutions for a guaranteed interest rate, which has averaged between 7.5 percent and 8 percent.
- First Financial makes their own investments with the funds and uses the earnings to pay the guaranteed interest rate.
It has worked internationally too. In Chile, payroll tax rates were 26 percent or higher and still the system was plagued with growing deficits -- and the promised benefits were inadequate. To address those problems, Chile adopted a new personal account system where workers were free to choose the new personal accounts or stay in the old Social Security system. Other nations such as Peru, Argentina, Colombia, Mexico, Bolivia, El Salvador, Uruguay, Australia, Great Britain, Hungary and Poland have followed Chile's Social Security reform leadership.
In a reformed system, Social Security would no longer be "pay as you go." Retirement benefits would be paid through the private sector rather than the government. Savings and capital investment would flow into the economy immediately, increasing economic growth, jobs, wages and income for working people today. Workers could be empowered to choose to save and invest in personal savings, investment and insurance accounts what they and their employers otherwise would pay into Social Security.
Source: Peter Ferrara, "Social Security Personal Accounts: Prosperity for All," Heartland Institute, June 2013.
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