NCPA - National Center for Policy Analysis

Salvaging Social Security Through Personal Accounts

March 2, 2001

Payroll taxes from current workers are used to pay Social Security benefits to current retirees. This pay-as-you-go scheme would be viable only if the number of workers grew faster than the number of retirees.

In 1940 -- the first year Social Security paid out benefits -- there were 42 workers for each retiree. But now there are only three workers per retiree, and that ratio will soon drop to about 2-to-1. So the present system is not viable and that is why President George W. Bush wants to allow workers to invest a portion of their payroll tax dollars in personal investment accounts.

  • A National Center for Policy Analysis study by Social Security trustee Tom Saving verifies that without the personal accounts, we will have either four times as much debt by 2050 as we have today -- or a payroll tax rate of 19.6 percent, a 57 percent increase.
  • The accounts will enable people to accumulate hundreds of thousands of dollars toward their retirement -- an outcome which should be of particular interest to minority workers, whose life expectancy is less than that of white workers.
  • According to Saving, a 20-year-old black male can expect to pay $40,979 more in Social Security taxes over an average lifetime than he receives in benefits.
  • Furthermore, his rate of return on Social Security taxes will only be 0.7 percent.

Source: Pete du Pont (National Center for Policy Analysis), "Act II: Social Security Reform," Washington Times, March 2, 2001.


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