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Republican Leadership Eyeing DeMint Plan
October 3, 2001
The Wall Street Journal and other sources report that Republican leaders
in the House, including Majority Leader Dick Armey (R-TX), are considering support
for Social Security privatization legislation being drafted by Representative
Jim DeMint (R-SC). This legislation, which has not yet been finalized, has also
been shared with the President's Commission to Strengthen Social Security. Among
the highlights:
- Workers under age 55 would be given the option of diverting a portion of
their payroll taxes to individual accounts. The amount that workers
could invest would vary according to a progressive formula weighted
toward low-income workers. Thus, a high wageworker would be able to
invest two percentage points of his payroll taxes (out of 12.4), while a low-wage
worker could invest 8 percentage points. Average-wage workers
would invest about 4.5 percentage points.
- Investment options would be severely restricted. Workers under age 40
would invest in a balanced fund of 80 percent stocks and 20 percent
bonds. Workers over age 40 would invest in a fund that is 60 percent
stocks and 40 percent bonds.
- At retirement workers would be required to use at least 40 percent of their
accounts to purchase an annuity. That amount would likely be combined
with benefits remaining under Social Security to provide a single
annuitized benefit. The remaining 60 percent of the balance in individual
accounts would be the property of the worker and would be fully
inheritable.
- It makes no changes in benefits for current or near retirees.
- The transition would be financed out of General Revenues, primarily
projected budget surpluses combined with modest reductions in
government spending. There are no tax increases.
While some privatization proponents have expressed concern over some
provisions (such as mandatory annuitization and the limited investment options),
DeMint is working hard to address those issues. Most privatization advocates consider
DeMint’s proposal a solid step forward in the debate. Moreover, if the Republican
leadership does endorse this proposal, it will establish a workable legislative vehicle
going into the debate.
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