NCPA - National Center for Policy Analysis

Private Social Security Investment Accounts

September 5, 2001

President Bush's Commission to Strengthen Social Security will hold its first public hearing Thursday in San Diego. The commissioners are backing the creation of private investment accounts that would let workers replace some of their government pledges of Social Security benefits with investments in stocks and bonds -- which have historically far out-performed Social Security's returns.

"The system has to be reformed," says Olivia Mitchell, a professor at the University of Pennsylvania's Wharton business school and one of the Democrats on the commission. "The question is, do your reforms just tinker with the system, or do you reform it to bring in individual responsibility and personal wealth?"

  • Polls show that roughly two out of every three people surveyed favor putting some payroll taxes in personal accounts.
  • While privatization proposals vary, the formula which seems to have the greatest support among analysts would divert 2 percent of wages -- roughly one-sixth of the payroll tax -- to individual accounts.
  • Historically, the stock market's average annual rate of return over any 35-year stretch has been 6.4 percent.

If nothing is done to shore up Social Security, benefits would have to be cut by at least one-quarter from promised levels beginning in 2038. Privatized accounts appear to be the most politically popular solution -- one that avoids benefit cuts and payroll tax hikes.

Source: Jonathan Weisman, "Four Ways to Fix Social Security," USA Today, September 5, 2001.

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