FREE! FROM THE U.S. GOVERNMENT! 100 BUCKS FOR YOUR RETIREMENT!

A hundred dollars isn’t much of a retirement plan.

That’s what each of the 143 million workers contributing to Social Security would get under Rep. John Kasich’s plan to use the federal budget surplus to set up IRAs.

Nonetheless, several leading economists are applauding the proposal as a step in the right direction to recast the Social Security system.

Mr. Kasich, R-Ohio, chairman of the House Budget Committee, has not yet offered details of his plan.

“It would be a relatively painless way to get the ball rolling to give people more choice and more control on how their retirement is funded,” says Bruce Cutherbertson, a spokesman for Mr. Kasich.

Mr. Cutherbertson said that if the budget surpluses are as large as Rep. Kasich believes, “we could use 20% to pay down the deficit and still have enough left to provide an account with about $100” for each worker.

Martin Feldstein, a professor of economics at Harvard University and chairman of the Council of Economic Advisers under President Ronald Reagan, backs a similar plan.

He suggests that projected federal budget surpluses are large enough to let the government divert from Social Security 2% of each worker’s pay (on earnings up to the $68,400 Social Security wage cap) to invest in individual retirement accounts. All working Americans would receive an income tax credit for these IRA deposits, resulting in a tax cut.

The money in these IRAs would grow tax-deferred. When those workers retire, the Social Security benefits they receive would be reduced by one dollar for every two they receive from their IRAs.

“It’s a much better idea to try and help people shore up their retirement income for the future than to dissipate the surplus in new spending,” says Laurence J. Kotlikoff, a Boston University economist who has been studying the problems facing Social Security.

He is advancing his own remedy. He would divert 8 percentage points of the Social Security payroll tax into individual accounts, which would be in
vested in a single global-index mutual fund to give everyone the same return on their mandated investments. Lower-income earners would receive a matching contribution from the federal government.

As workers hit 60, their account balances would be converted into annuities. At the same age, accrued liability for people in the system would be frozen.

Michael Tanner, director of health and welfare studies at the Cato Institute, a libertarian think tank in Washington, also supports a move toward IRA-like investments.

“There’s no way to save Social Security except to go down the road of individual accounts,” he says.

Mr. Tanner would like to see the income the Social Security system loses from funds diverted into the IRAs made up by reimbursing the Social Security trust funds with part of the budget surplus.

At the same time, Lawrence Kudlow, chief economist at American Skandia Life Assurance Co., in Shelton, Conn., and a vocal supporter of individual rights, calls Rep. Kasich’s proposal an attractive idea.

“Republicans have started to come to their senses and are starting to say we agree with you (President Clinton) that something has to be done about Social Security,” he says.

cut payroll tax?

Mr. Kudlow offered an even more radical approach, suggesting the budget surplus be used to cut the Social Security payroll tax rate by one percentage point or more.

He readily acknowledges Americans would be free to spend, rather than save, that extra money: “If you want to spend the tax cut on a Ford Explorer, that’s up to you.”

Meanwhile, Mr. Kasich’s idea, along with dozens of other Social Security reform proposals, probably will get an airing at the first of President Clinton’s forums on Social Security, slated for April 7.

The need to fix Social Security is underscored by a yet-unpublished study for the Federal Reserve Bank of Cleveland pointing out that future generations will inherit the unpaid bills of baby boomers if the spiraling cost of social programs is not check
ed.

The study, written by three experts, predicts those born after 1995 will pay a 49.2% lifetime tax rate, compared with a 33.4% lifetime tax rate for those born in 1950.