NCPA - National Center for Policy Analysis

Progressive Personal Investment Accounts

August 27, 2001

Rep. Jim DeMint(R-S.C.) has drafted "a savvy and sensible private investment plan for Social Security," says Stephen Moore. DeMint's plan would accelerate the transition to a fully private retirement system to within a generation.

The DeMint plan guarantees benefits no lower than Social Security would offer -- thus removing virtually all of the "risk" from private investment accounts. The plan also helps the lowest-wage workers the most.

His legislation, the Social Security Personal Ownership Plan, is modeled after the Thrift Savings Account Plan now offered to federal workers, including members of Congress.

  • Investment accounts would be completely voluntary for workers; those who don't want them may stick with Social Security.
  • Lower wage workers would be allowed to immediately invest up to 8 percentage points of the 15.3 percent payroll tax into private investment accounts.
  • Higher wage workers would start with a 3 percentage point diversion of payroll taxes into private accounts.

This progressive feature ensures that lower-wage workers will be able to put more than enough into their personal accounts to cover administrative costs.

Lower income workers would be able to acquire real wealth much faster than under plans allowing workers to divert only 2 percent of their paychecks.

  • The DeMint plan solves the "transitional financing" problem by paying for current benefits out of payroll tax revenues plus borrowing from the on-budget surplus projected for the next dozen years.
  • According to Social Security actuaries, the DeMint plan lowers the projected $22 trillion accumulated Social Security deficit by two-thirds because of the higher rate of return private investment offers.
  • Any American 20 years old or younger could rely exclusively on the personal accounts, and wouldn't need a dime of Social Security.

Source: Stephen Moore (Club for Growth), "Savvy On Social Security," Washington Times, August 26, 2001.


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