Subject: RE: The fiscally responsible middle ground
Contributor: PANELIST: Rep. Charlie Stenholm
Michael,
Thank you for your comments on our plan. They are appreciated.
You raise some very good points. Let me try to respond as best I can to each point:
The tax credit for a low-income match will be funded by general revenues. The credit is only available to individuals who make contributions with their own money, so it is not an entitlement. We limited the costs of the tax credit by capping it's size.
The individual accounts are intended to provide a source of retirement income to replace the reduction in defined benefits, so we felt it was important to direct the 2% of payroll taxes into individual accounts. You can access the money in your account as soon as you have accumulated enough money to provide for your own retirement.
You are right to compare the benefits under our plan to what current law can deliver, because we cannot afford to fund the promised benefits under current law. The reductions in the bend points under our plan would bring total costs in line with what we can afford, while the individual accounts give you an opportunity to get a higher rate of return. When the defined benefits in our plan are combined with the anticipated income from individual accounts under conservative assumptions, all workers will recieve a much higher rate of return than they would get from what current law can deliver.
Our plan preserves 10.4% of the payroll tax for the traditional system in order to fund the social insurance/safety net features of the program at the same time we create individual accounts. While I believe that individual accounts are important to provide individuals with an opportunity for better rates of return, I also believe that we need to preserve the social insurance functions of the program as well. After spending a lot of time looking at different options and studying the numbers, we decided that putting 2% in the individual accounts was the most we could do while still preserving the disability insurance and poverty protections that are important in the current system.
The other benefit that our proposal has for younger workers is that it protects you from the increased tax burdens you will face under current law. By honestly addressing the shortfalls in the existing system, we reduce the amount of money the government will have to come up with to meet the shortfall in the Social Security system after 2014 by several trillion dollars. The pressure that will be placed on income taxes to meet benefit promises is one of the hidden costs of the system that we address in our plan.
