Private companies are not really set up to provide the kind of long-term financial protection that Social Security programs provide, speakers said today at a hearing on Capitol Hill.
Rep. Earl Pomeroy, D-N.D., chairman of the House Ways and Means Committee Social Security subcommittee, organized the hearing to commemorate the 75th anniversary of the enactment of Social Security.
Some economists have suggested that the government ought to try to improve the finances of Social Security by taking steps such as increasing the normal retirement age or reducing inflation-based benefits adjustments.
“Several years ago, the American public overwhelmingly rejected President Bush’s flawed plan to take money out of Social Security and put it into private Wall Street accounts,” Pomeroy said, according to a written version of his remarks posted in the Social Security hearing section of the Ways and Means website. “Some have recently dusted off those ideas and sanitized the descriptions with names such as ‘progressive price indexing’ and esoteric discussions about benefit computations. But this cannot hide the unambiguous truth that if enacted, my children would have Social Security payments replacing about one-fifth to one-third less of their wages when they retire than I would.”
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Kelly Ross, deputy policy director at the AFL-CIO, Washington, argued that Social Security is still stronger than the other “legs of the three-legged retirement stool” – personal savings and employer-provided pensions.
Few workers can afford to save on their own, most employers have dumped traditional pension plans, and many of the employers that offer 401(k) plans and other defined contribution retirement plans have eliminated the employer matching contributions, Ross said.
Social Security faces a modest projected funding shortfall over a 75-year period, but, if it were a private multiemployer pension plan, it would be in the “green zone,” meaning that it would be considered to be in good health, Ross said.
Nancy Altman, co-director of Social Security Works, Washington, suggested that policymakers could improve the finances of Social Security by increasing the percentage of withholding taxes, letting Social Security investment some assets in broad-based stock funds and Treasury bonds, and giving estate tax revenue to Social Security.
The percentage of total U.S. wages subject to federal withholding taxes has fallen to 84%, from 90% in 1983, Altman said.