What does the future hold for your retirement ? What changes are being proposed:
The leading reform proposal in Bush's first term said that individuals could set aside 4 percent of their pay (up to the payroll tax cap, currently $90,000) in personal accounts, but that the maximum anyone could set aside per year was $1,000. In his new proposal, however, the president added a promise to phase out that $1,000 cap. This may sound like an innocent change. But it turns a plausible plan into a crazy one.
The phaseout kills the progressivity in personal accounts. Under the old proposal, a worker earning up to $25,000 could divert 4 percent into his account, whereas a worker on $90,000-plus could divert just over 1 percent; the opportunity to earn superior investment returns was to be concentrated among workers who most needed it. But if Bush phases out the $1,000 cap, that progressivity will ultimately be eliminated.
This might be okay if you could create extra, compensating progressivity in the residual Social Security system. But Bush's cap phaseout makes that almost impossible.
Why? In an uncapped system, high earners get big personal accounts; in return, they accept commensurately big cuts in their traditional benefits. According to Jason Furman of the Center on Budget and Policy Priorities, by 2075 high earners' traditional benefits might be reduced -- get this! -- to zero.



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