FIXING SOCIAL SECURITY

February 2005
		President Bush has launched a national campaign to generate support for his plans to reshape Social Security, including the controversial option of personal investment accounts for younger workers. Peter Orszag, senior fellow in economic studies at the Brookings Institution, and Michael Tanner, director of health and welfare studies at the Cato Institute, answer your questions about the voluntary personal accounts and other aspects of the president's plan. Special Report: Social Security Reform

Forum Introduction What are President Bush's plans for Social Security disability? Didn't Great Britain undertake the personal accounts experiment with their version of Social Security to detrimental results? How do the personal accounts affect employers' contributions to Social Security? How would removing the $90,000 income limit on Social Security taxes affect the system's future? What happens if a person's private account runs out? How will the average person who knows nothing about investing fare under President Bush's new plan? How does the federal Thrift Savings Plan differ from Social Security? Under the personal accounts proposal, will there be fees for investing, and who and how will they be paid? If the IOUs in the Social Security trust fund were paid, would the system remain solvent for a much longer time? Why would anyone want to change Social Security, an insurance program, into a savings account? I'm 48, how drastic are my benefit cuts going to be?	Thomas Heuer of Galt, Calif., asks: Currently contributions are made to Social Security by both the employee and employer. If 4 percent of the employees' contribution is redirected to a private retirement account, does the employer reduce their contribution to Social Security by 4 percent? Would they contribute to the employees' private account like a 401k? Michael Tanner responds: The 4 percent contribution would most likely be handled as 2 percent by the employee and 2 percent by the employer, though in purely economic terms it makes no difference. Your employer currently makes a lump sum payment combining both portions. That combined payment would simply have 4 percent redirected to your account. Peter Orszag responds: Different proposals handle this question differently. Most split the contributions into the accounts equally, with half of the diverted revenue coming from the employee share of the payroll tax and half from the employer share. The total contribution (from employer and employee combined) under the Administration's proposal would ultimately be 4 percent of wages.