Talk of Social Security reform is in the air these days. Senator Daniel Patrick Moynihan wants to return Social Security back to a pay-as-you-go system. Doing this would reduce the payroll tax rate by as much as two percent which workers could invest in savings accounts. His bill also raises the maximum amount of wages subject to taxation.
Critics of his plan call it a deceptive tax increase since the bill would raise the cap on earnings subject to payroll tax. Workers in the higher tax brackets would face a tax hike of $3600 per year. Even those workers who would receive a tax reduction would only receive it temporarily since taxes are scheduled to return to current levels by 2030.
Many are suggesting that the best way to truly save Social Security is to move toward privatization. Congress should strike a bargain with workers. In return for providing a true cut in your payroll taxes, you can invest in your own retirement account and thus accept a cut in Social Security benefits when you retire. Those reduced benefits will not only be covered by your IRA earnings, but will provide you with a greater income when you retire.
Gradually privatizing the system is the best way to transform Social Security into a system based on individual savings and investment. This type of system was successfully implemented by Chile sixteen years ago and needs to be implemented here.
Senator Moynihan deserves credit for proposing changes that should have been implemented years ago. But as progressive as his bill might seem, it merely attempts to preserve a flawed system. If Congress is really serious about trying to fix Social Security, then it should enact legislation that transforms it into a system that encourages individual savings and investment.
I'm Kerby Anderson of Probe Ministries, and that's my opinion.
© 1998 Probe Ministries International