Break It Up!

Payroll taxes could be on the rise.

All three of the recommendations from a high-level Social Security Advisory Council endorsed higher payroll taxes, a notion that leaves most small-business owners queasy.

One proposal advocates increasing the 12.4 percent payroll tax by 1.6 percentage points in the year 2045, calls for some additional tax increases in much earlier years, and allows the federal government to invest about 40 percent of the funds in the stock market. Currently, Social Security revenues are invested solely in federal government bonds.

The second option ups the tax by 1.52 percentage points in 1998 and diverts 5 percent of the total into a personal retirement account whose proceeds are invested at the recipient's discretion. The third increases the tax by 1.6 percentage points in 1998 and also sets up a personal retirement account, but lets the federal government do the investing.

"We would oppose any proposal to increase payroll taxes," says John Satagaj, president of the Small Business Legislative Council, a Washington, DC-based coalition of 100 trade associations. "We think they should be reduced. We don't have a position on privatization of individual retirement accounts, though my gut feeling is that our members would feel they could invest their Social Security savings better than the federal government could."

p> Stephen Barlas is a freelance business reporter who writes monthly Washington columns for 15 magazines.

This article was originally published in the April 1997 print edition of Entrepreneur with the headline: Break It Up!.