Private Accounts vs. Social Security….Good or Bad?
It’s funny how quickly some things change. Not too long ago, the AARP and the N.Y. Times were vehemently opposed to fixing Social Security with private accounts. This week, they’ve both decided it’s not such a bad idea (here and here).
A newly released proposal by The Heritage Foundation’s David John and Brookings’ J. Mark Iwry suggests improving retirement security with the “automatic IRA.” The paper only outlines a proposal, but the general idea is this: most employers would have to offer an automatic payroll deduction for individual workers’ private retirement accounts. Individuals would have the chance to opt out of the forced saving program, so it isn’t really “forced” savings.
I suspect that some staunch libertarians will be opposed to a plan such as this on the grounds that the government should not force this cost on employers. But how much of a cost would this really impose on employers? And, assuming that private accounts would eventually eliminate the need for Social Security, what would be the cost of not switching to private accounts?
My last question: What is in this proposal that would make the AARP and NY Times, just months after trashing any similar idea, endorse it?
Happy Mardi Gras Everyone.
NM
March 4th, 2006 at 12:37 pm
This proposal made the AARP and the NY Times change their mind because the govern pointed out that with private accounts there would be no need for a social security tax which in my opinion wouldn’t change nothing for the average blue collar worker.If the government gets rid of the social security tax that they take out of your check already and add the program where your regular employees pay for the private accounts anyway it’s not saving them no money no matter which one the government choose. I know the government will never pass a law that wouldn’t benefit them in the long run so really everyone who reads this article can give their opinion , but the government had to look into the benefits of switching to private accounts because if they really wanted to switch to private accounts they would have switched the first time it was proposed to them.
March 17th, 2006 at 3:29 pm
The private account scenario proposed by the Bush Administration in 2004 diverts 4% of payroll tax withholdings into individaul accounts up to a max of $1,000 per year, adjusted annually. This leaves just 8.4% for the traditional Social Security fund.
Unless I’m missing something, it sounds like the automatic IRAs are an addendum to private pension plans and would not affect existing Social Security benefits. The reason AARP is opposed to Bush’s private accounts is that it results in decreased overall SS benefits. However, it doesn’t appear that automatic IRAs would affect SS benefits.
I don’t believe cost is an issue for the auto IRAs. The cost should be negligible for employers since reporting and admin requirements for IRAs is minimal.
The age old problem is how to encourage low to middle income people to contribute. Government matching would certainly be a better incentive than the tax breaks that have been tried in the past. Auto enrollment has been shown to work as well.
December 7th, 2006 at 6:09 pm
The AARP and NY Times may have seen the light. They think it would help the tax payer. This idea for personalized account may be a good idea. Whatever a person put into accounts, that is what they will get back. The hard workers of America may like this idea, but will privatized accounts work? I thought the government should let American vote on this topic so we, the taxpayers can decide.