Moynihan-Kerrey Personal Savings Plan For Social Security
May 31, 2000
Presidential candidate George W. Bush has proposed to allow workers to invest a portion of their payroll taxes in their own private retirement accounts. Senators Daniel Patrick Moynihan (D-NY) and Robert Kerrey (D-Neb.) have their own proposal to let workers retain two percentage points from their Social Security payroll taxes to invest in a personal savings plan modeled on the one available to federal employees since 1987.
To make up any shortfall in Social Security payroll tax revenues -- which are used to pay the benefits of current retirees -- Moynihan proposes to:
- Adopt a more accurate cost-of-living adjustment -- since the consumer price index still overstates inflation by about eight-tenths of a percentage point.
- Provide normal taxation of Social Security benefits -- which are now only partially taxed -- and extend Social Security coverage to all newly-hired state and local workers.
- Increase the number of years counted in computing benefits from 35 to 38.
These changes, Moynihan promises, would make Social Security's collection of those two percentage points unnecessary.
These provisions, along with a proposal by Sen.Kerrey to provide every child with a nest egg of $3,500, were introduced in the Senate last year as the Social Security Solvency Act of 1999. The $3,500 would be apportioned through $1,000 at birth and $500 on each of a child's first five birthdays.
To ensure solvency of the system there would need to be an increase in the retirement age, but that could be delayed into the distant future, Moynihan says.
If such a program were modeled on the Civil Service Retirement Plan, and assuming a 7 percent non-inflation-adjusted rate of return, an average worker making $30,000 a year would wind up with $350,000 in savings at the end of 45 years, Moynihan states.
Source: Sen. Daniel Patrick Moynihan (D-NY), "Building Wealth for Everyone," New York Times, May 30, 2000.
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