Republican presidential contender Newt Gingrich on Monday proposed allowing younger workers still decades away from retirement to bypass Social Security and instead choose private investment accounts that would be subject to stock market gyrations.
The former House speaker, who has risen in the polls, would allow younger workers to take their share of the payroll tax that funds Social Security and put it in a private account.
Employers would still pay their share of the tax, which would be used to pay benefits for current retirees. But it would create a funding shortfall that Gingrich brushed off.
“That gap is more than covered by the savings” that would come from giving states control of 185 social welfare programs, Gingrich told reporters after a speech that laid out broad concepts but lacked key details.
Gingrich’s plan would cover the near-term deficits by giving to states responsibility for such programs as AmeriCorps volunteers, Section 8 public housing and Pell Grants for college students. He said states were better suited to administer those programs.
Gingrich said his retirement proposal, an idea floated by Republicans before him, would empower voters.
“Wouldn’t you rather control your account?” Gingrich asked an audience of students at St. Anselm College.
His advisers couldn’t say how much the plan would cost, when it would begin or who would be eligible. They did say, however, that current retirees would continue to receive benefits at promised levels.
Peter Ferrara, Gingrich’s senior economic policy adviser, said federal spending as a whole would be reduced by half within the next three decades.
“It’s a lot of reduction,” he said.
At a business leaders’ breakfast earlier in the day in Nashua, Gingrich predicted that the program “would save literally trillions over the next generation.”
Under the plan, workers would be able to do one of two things: continue sending their share of Social Security taxes to the popular, safety-net program or give it to private firms that would compete for those dollars — as much as $20,000 a year, Gingrich estimated.
“No one is ever forced into the (private account) system,” he said after the speech.
Markets would determine how much money workers who chose private accounts would get each month. Gingrich guaranteed a minimum income in case Wall Street collapses like it did in 2008.
As Gingrich spoke Monday, stocks plunged several hundred points by midday as a special congressional panel in Washington appeared ready to declare failure in its attempt to agree on how to trim federal spending by $1.2 trillion over a decade.
Under Gingrich’s plan, the federal government would regulate the private accounts run by private firms to ensure the portfolios were diversified enough to prevent one company or sector from taking down the entire system.
Government approved firms then would compete for consumers, who could move their money among accounts based on fund performance.
Organized labor and advocacy groups such as AARP would be allowed to collaborate with the investment firms to tailor plans to reflect the promises they make in pension plans.
Gingrich’s plan also would treat the private retirement accounts as other investments, which could be passed on as part of an estate.
President George W. Bush offered some similar proposals for Social Security after he was re-elected in 2004, but faced stiff resistance from Democrats and some within his own party about any proposed changes to the popular program.
Workers pay a 6.2 percent Social Security tax on the first $106,800 in wages, which is matched by employers. This year, the tax rate for workers was reduced temporarily to 4.2 percent. The tax cut is set to expire at the end of the year, though President Barack Obama wants to expand it and extend it for another year. Congress is expected to approve.