NCPA - National Center for Policy Analysis

The Savings Factor In Social Security Privatization

October 30, 2000

In the debate over allowing Americans to invest part of their Social Security dues in private stock and bond accounts, the impact of injecting additional billions of dollars into productive enterprises is often overlooked. Economists predict that financially aware Americans will likely save more -- and the money saved will likely show up in higher output, more jobs and rising incomes.

Presidential candidate George W. Bush has proposed allowing taxpayers to invest two percentage points of the current 12.4 percent payroll tax they now pay into Social Security.

  • While that may not sound like much, economist Martin Feldstein figures that if the plan were currently in effect, private savings would be boosted by $79.8 billion this year alone.
  • That amount would keep on growing -- rising above $100 billion a year by 2020, and $200 billion a year sometime around 2070.
  • Lawrence Lindsey, Bush's top economic adviser, estimates the accounts would build up $3 trillion in assets by 2015, and perhaps as much as $5 trillion to $6 trillion by 2025 -- an amount equal to two-thirds the size of all current mutual fund assets.
  • Many economists fault the Bush plan as too timid and would like to see the two percentage point ceiling raised to six or eight percentage points -- which would increase the economic benefits accordingly.

They do agree, however, that something along these lines must be done soon. There are three workers for every retiree today. In 20 years, there will be just two workers per retiree.

That means payroll taxes will have to be boosted by nearly 50 percent to 18 percent of income -- or higher -- just to keep Social Security from going bust.

Source: Terry Lee Jones, "Social Security Reform's Big Bonus: Trillions for New Investment Capital," Investor's Business Daily, October 30, 2000.


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