For all Americans, but especially the employees and owners of small businesses and those who are self-employed, strengthening Social Security will be paramount to continued economic prosperity.
The Social Security system has served our citizens well for many years. It is, as President Bush has said, one of our country’s “great moral successes.” But we are no longer the America of the 1930s. Our commitment to the values that conceived Social Security remains strong. But our demographics have changed.
In 1950, there were 16 workers paying into the system for every person collecting benefits. Already that number has plummeted to 3.3. And by the time today’s 20-year-olds retire, it will drop to two workers for every beneficiary.
In 2008, the first of over 75 million baby boomers will begin to retire, putting added strain on the system. In 2017, Social Security will begin paying out more than it takes in. And in 2041, Social Security will be bankrupt. If we don’t act soon, we’ll have three choices: massive government borrowing, severe benefit cuts or drastically higher taxes.
If you own or are employed by a small business, none of those options are likely to appeal to you. Anything that has a devastating impact on the economy affects small businesses first and foremost. Massive government borrowing can have the unintended side effect of siphoning capital away from small businesses. Severe benefit cuts would disproportionately impact entrepreneurs and those employed by small businesses, because they are often without access to private pensions. And if you are a small business, drastically higher taxes could make the difference between ending the year in the red and ending it in the black.
President Bush understands this and he has made it clear that all options are on the table for strengthening Social Security, with the exception of raising the payroll tax rate. The Social Security payroll tax rate has been raised 20 times since 1937-seven times between 1978 and 1990 alone. Not only have these rate hikes not solved the problems facing Social Security, but every tax increase has deeply negative consequences on workers’ take-home income and on our economy as a whole.
The president envisions enacting comprehensive Social Security reform that will turn that promise into real assets that each American can own in his or her name. Voluntary personal accounts will allow younger workers to create a nest egg for retirement that can never be taken away by the government.
The importance of personal accounts is amplified by the limited retirement savings options for the self-employed. The current double payroll tax puts small business retirement plans out of reach for many. But voluntary personal accounts make retirement assets a real possibility for those who would otherwise rely heavily on Social Security. And through personal ownership, the accounts ensure that your money can not be spent on other government programs instead of on your retirement.
We must fix Social Security in a way that benefits America’s 25 million small businesses. The best way to do that is to let all Americans participate in the American dream by becoming owners of their own future.
Hector V. Barreto was a small business owner and is now the 21st administrator of the Small Business Administration.