From the April 1999 issue of Entrepreneur

Social Security reform is apt to be the only red-hot issue in what is expected to be an otherwise lukewarm Congress. The need to assure the system's solvency, which will evaporate by 2030 if no changes are made, poses potential dangers--and an opportunity perhaps--for entrepreneurs.

The key question for business owners is what will happen to the 12.4 percent Federal Insurance Contributions Act (FICA) payroll tax, of which employers pay half. Will it be increased to assure the long-term viability of the Social Security trust fund? Or might a reduction result from using some of the estimated $1 trillion budget surplus to keep the system awash in cash?

In his January State of the Union address, President Bill Clinton said he opposed increases in the payroll tax. Instead, he proposed to use a portion of the budget surplus to save Social Security. About a quarter of that amount would be invested in stocks to keep the system solvent until 2050. In addition, Clinton would take an extra $33 billion per year from the surplus with which to seed Universal Savings Accounts for individuals.

Small-business groups are unenthusiastic about these proposals. "The President's proposal to invest portions of the budget surplus in the Social Security trust fund and the stock market to save Social Security are examples of a politically appealing approach that is seriously flawed," says Jerry Jasinowski, president of the National Association of Manufacturers.

Congressional Republicans--and Federal Reserve Chairman Alan Greenspan--agree. Republicans say they'd prefer to allow employees and employers to use part of the current payroll tax for their own individual retirement accounts.

If anything unites small-business owners, it's opposition to a payroll tax increase. "That would be the litmus test," says John Satagaj, president and general counsel of the Small Business Legislative Council, which opposes any increase. "We haven't seen pressure yet to increase the tax, but it's possible."


Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.