Privatize Social Security to Help Working Poor

December 9, 1999

During the Republican presidential primary debate in Arizona on Monday night, several questions revolved around the question of helping the working poor. Both questioners and the candidates repeatedly pointed out that the payroll tax is the largest tax that most working families pay. In fact, nearly 80 percent of Americans pay more in payroll taxes than in federal income taxes. Unfortunately, none of the candidates seized the opportunity to point out the real unfairness of the Social Security payroll tax.

Low-income workers are being forced to pay 12.4 percent of their money into a Social Security system that will provide a near negative rate of return, is not inheritable, and to which they have no legal ownership rights. Under a privatized system, workers would receive something of value in exchange for their payroll contribution: an opportunity to accumulate real wealth. Payroll taxes invested in private capital markets through individual accounts will provide higher retirement benefits -- three to five times higher according to research by the Cato Institute. (See Social Security Privatization No. 2, Retiring with Dignity: Social Security vs. Private Markets.

But more importantly, workers would have a legal property right to their accounts and an ability to pass down their accumulated wealth to future generations. To see how Social Security privatization would help the poor, see Social Security Privatization No. 4, Privatizing Social Security: A Big Boost for the Poor.

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