The Business Of Reform

A NAM-founded coalition promises to be in the forefront of overhauling Social Security.

As the Bush administration presses its plan for Social Security reform, and Congress considers a hopper of options, the U.S. business community will be lobbying the issue from, among other places, the Pennsylvania Avenue offices of the National Association of Manufacturers (NAM), just two blocks from the White House.

NAM's headquarters in Washington, D.C., houses the Alliance for Worker Retirement Security, a group mostly of associations, including the NAM, the U.S. Chamber of Commerce, the National Federation of Independent Business, and the Business Roundtable, and a few companies, such as Pfizer Corp. NAM founded the group, which now has about 40 members, in 1998. "The NAM has probably put in as much time and effort as anybody else on the issue, and I think we're going to be playing a leading role throughout this year," says Derrick A. Max, the alliance's executive director.

The group has two major interests is seeing Social Security reform. First, the Federal Insurance Contributions Act tax that funds Social Security is "a head-tax on employment, so if you're in a labor-intensive industry like a lot of manufacturing is, you feel it. Every time you want to hire a new person, the first dollar you pay them, you pay 12.4 cents to the government," states Max. "When you tell a manufacturer who operates on very small profit margins that that tax they're paying on each employee could go from 12.4 [cents] to 19.6 [cents] if we don't fix [Social Security], their eyes get wide, and they think 'I bet it doesn't [go] up in China,'" he contends. Second, the creation of individual personal investment accounts, which the Bush administration is pushing, and the alliance has backed since its founding, is in keeping with the movement among companies away from defined benefit retirement plans and toward defined contribution plans, Max says. He plays down the prospect of private investment in equities driving down the cost of capital to manufacturers.

The Bush administration is pushing Social Security reform now out of a belief that as the baby-boom generation begins to retire in 2007, the surplus in the Social Security System's accounts will begin to turn to deficit. That, in turn, would make the administration's goal of halving the federal budget deficit in five years all the more difficult.

At this point, no one, including President Bush, the members of the U.S. Senate and House of Representatives and those in the Alliance for Worker Retirement Security knows what privatization plan, if any, will emerge from Congress.

A plan proposed in 2001 by the President's Commission to Strengthen Social Security envisions workers being allowed to channel up to 4 percentage points, with a maximum of $1,000, of the payroll tax they pay annually into an individual private account that offered equity, corporate bond and Treasury bonds. UBS Securities LLC suggests transition costs of this plan "would likely reach" $1.7 trillion during its first 10 years and not begin to lower the federal budget deficit for nearly 50 years.

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