Policy point-counterpoint: Social Security reform.

• Author: Bryant, Claudia

Since President George W. Bush delivered his State of the Union address on February 2, 2005, in which he formally introduced his proposal to incorporate personal/private accounts into the Social Security program--one's terminology varies depending on their political perspective and support for or opposition to the plan--the issue of reforming the Social Security system has been hotly debated by political leaders, pundits, and citizens alike. Regardless of one's views toward the plan, individuals on either side of the debate have yet to question how the president's proposal would alter the financing scheme currently used to fund the Social Security program. At present, 6.2 percent of workers' salaries are invested in the Social Security trust fund. Employers match this contribution for each of their employees. Those who are self-employed pay the entire 12.4 percent themselves. Under the president's proposal, individuals would be allowed to invest up to four percent of their payroll tax contribution to Social Security in individual accounts rather than having those funds deposited into the federal government's trust fund. Upon retirement, individuals would live off a reduced Social Security benefit plus the income from their investments rather than from the traditional stipend provided by the Social Security Administration. The remaining 2.2 percent of each worker's salary would continue to go into the government's Social Security trust fund to cover payments to existing beneficiaries.

One of the primary advantages of his plan that the president touts is the fact that individual accounts offer the opportunity to receive higher yields on one's investment than are currently available through Social Security. Additionally, benefits can be passed to loved ones through inheritance after one's death. Opponents express concern that the president's proposal would divert money out of Social Security, thereby weakening the system overall, and that it would fundamentally alter the nature of Social Security as a "safety net" program designed to keep the elderly out of poverty.

That President Bush's proposal has caused intense debate since its formal introduction should come as no surprise given the central role that Social Security has come to play in American life since its creation in 1935. (1) Coverage is nearly universal, with approximately ninety-five percent of older Americans either currently receiving or are eligible to receive benefits upon...