PERSONAL ACCOUNT REFORM
September 13, 2004
A privately funded Social Security system would create more money in the personal accounts of working Americans than the transition costs, says former Speaker Newt Gingrich (R-Ga.).
- The official score by the chief actuary of Social Security of the personal account reform legislation introduced by Rep. Paul Ryan and Sen. John Sununu projects that after just the first 15 years of such reform, workers will have accumulated $7.8 trillion in their personal accounts.
- Consequently, reforms using general revenues for the transition to personal accounts involve a historic transformation of what is now government taxes and spending into personal savings and wealth.
That transformation would translate into a major boost to economic growth, both through increased savings and investment, and reduced taxes, says Gingrich.
- Paying all promised benefits under the current system would ultimately require increasing payroll taxes from 12.4 percent today to 20 percent.
- But under the Ryan-Sununu plan, the chief actuary's official score shows that the payroll tax ultimately would be reduced to 4 percent.
- Moreover, the tax-free personal accounts involve a reduction in the tax burden on savings and investment.
This stronger economic growth, in turn, would produce enough increased general revenues to provide a large portion, quite possibly even a majority, of the general revenues needed to finance the transition, and it would create new jobs and higher wages.
Moreover, because market investment returns are so much higher than what the current, redistributive, noninvested Social Security system can pay, the personal accounts ultimately would pay workers a lot more in retirement benefits than Social Security even promises, says Gingrich.
Source: Newt Gingrich, "Personal Account Reform Would Enhance Savings," Letter to the Editor, Wall Street Journal, September 13, 2004.
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