HR 4851 would allow workers to devote 10% of their payroll taxes on the first $10,000 of wages each year into tax-free personal accounts, and 5% of their payroll taxes on wage amounts above $10,000. Representative Paul Ryan (R- Wisconsin ) said during a news conference on average, the Social Security Personal Savings Guarantee and Prosperity Act would allow workers to dedicate 6.4% of their Social Security payroll tax to their investment accounts.
“The retirement of the baby boom generation will put great pressure on the Social Security system in the coming decades. If we stick to the status quo, down the road we will face the awful choice between cutting benefits, raising taxes, or boundless borrowing for the foreseeable future. This is unacceptable, and we have a responsibility to stop it from getting to that point,” Ryan said.
The plan is voluntary, and workers who decide to stay in traditional Social Security rather than exercising the personal accounts option would receive the benefits promised to them under current law, Ryan said.
Those choosing to participate in personal accounts would have a selection of investment options,managed by a major private investment firm,that are regulated for “safety and soundness” – similar to the way the Thrift Savings Plan for federal employees works today, Ryan laid out. The federal government would back the personal accounts with a guarantee that workers receive at least as much as Social Security promises under current law under provisions of the bill.
“The key is giving workers the option of investing in personal accounts, backed by a federal guarantee,” said Ryan. “Besides giving workers a better deal for their retirement, this will help us get the government’s financial house in order- reducing debt and payroll taxes over the long term.”
A summary of the bill is available on Ryan’s Web site .