Headed For A Showdown?
An inside look at the issue that promises to get the attention of an apathetic Congress
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.
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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.