Rep. Newt Gingrich (R-Ga.) said Thursday that he intends to propose a radical reform of the Social Security system in which government checks would gradually give way to private retirement accounts for most retirees.
Gingrich, who won reelection Tuesday to his fifth House term, will recommend replacement of the current payroll tax with a national sales tax that would finance Social Security benefits and Medicare for today’s older Americans.
Younger workers would be required to establish individual retirement accounts to provide for their own retirements, although the government would be responsible for maintaining all senior citizens above the poverty level, he said.
Hopes to Help Shape Debate
In making his proposal, Gingrich also is hoping to help shape the terms of the nation’s political debate.
” . . . The real dividing line in American politics for the next decade will be between those who maintain that we can avoid fundamental change and those who believe that we must totally rethink our welfare state,” he said.
Gingrich will propose abolishing the current payroll tax that finances Social Security, effective in two years. Instead, businesses would be required to pay their 7% payroll tax directly to their workers.
Workers over age 40 would thus find their pay increased by 14%--their own 7% contribution matched by what their employer pays them. Workers under age 40 would have their take-home pay increased by 4%, and would be required to place the other 10% into a new mandatory individual retirement account.
A new trust fund would be established to raise all senior citizens above the poverty level, to be financed by a “value added tax” described as a “simple across-the-board sales tax.”
American exports would be exempt from the tax, a step designed to help reduce the massive U.S. trade deficit.
Current Social Security retirees would continue to receive their benefits, although those living under the poverty level would receive supplemental aid. Retirees would receive a one-time increase in Social Security payments to offset the money they would lose through the new sales tax.
Americans between the ages of 40 and 65 would receive Social Security benefits when they retire, as current retirees do.
Retirement benefits for those currently under 40 would come from their mandatory individual retirement accounts, although they also would be guaranteed enough government assistance to live above the poverty level.