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United States
Social security advisory council proposals
Three proposals have been put forward by the Social Security Advisory Council, appointed by the Clinton Administration in 1994, to resolve the projected funding shortage of the social security system. The three proposals are:
- Increase taxation of benefits, redirecting some of the income-tax revenues on benefits from Medicare to Social Security. Investment of 40% of trust fund assets in stocks and bonds.
- Cut benefits so that they can be funded by current payroll tax rate. Requires workers to save another 1.6% of covered payroll. The government sets up and manages investment accounts.
- Personal Security Account (PSA) : Disability and survivor benefits for young dependants remain untouched. Employer contributions (5%) continue to go to Social Security as a flat rate benefit. Worker contributions (5%) put into a PSA, an individual account like a 401k or IRA.
While the first two proposals consider investing part of Social Security revenues in the stock market, members disagree on whether this should be decided by workers or the government. The last proposal, involving setting up PSAs, necessitates a significantly funded system, and would require an increase in the tax rate, of about 1.5% of covered payroll over a 70-year period.
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