Nuby Fowler, SBA Region IV Administrator
(BPRW)For America’s 12.2 million self-employed, the current discussion over the future of Social Security should hold special significance. This growing segment of the economy, whose individual contributions to Social Security are often double those of salaried and wage employees, have a disproportionate stake in improving the long-term health of the system.
They also would benefit greatly from the option to voluntarily invest a portion of their Social Security taxes in a personal retirement account. Not only do personal accounts offer a better way to fund Social Security, they create a more flexible program where the nation’s small business men and women have the chance for a fair return on their investment.
Here are the facts. Most individual salaried and wage workers in this country pay 6.2 percent of their wages to fund the nation’s old age, survivor and disability pension fund. One hundred percent of that contribution is matched by their employer. But for the self-employed, the payroll tax for Social Security is a whopping 12.4 percent. For the self-employed, the additional 6.2 percent contribution comes directly from their earnings as a tax burden they individually bear.
Social Security has long been a pay-as-you-go system. Workers today are funding the benefits of current retirees, with the promise that contributions from future workers will be sufficient to cover their benefits down the road.
A good plan, provided that population growth and life expectancy remain constant. But with the anticipated bubble of retirees filing claims over the next 25 years and rising life expectancies, projected revenue will simply not be sufficient to cover the cost of the program in future years.
For the self-employed, the looming retirement crisis has particular significance because they have a greater portion of their incomes invested in the system—incomes that wage earners have available to invest in private IRAs, company retirement plans or employer-sponsored Keogh accounts.
Partial privatization of Social Security will allow the self-employed to make critical decisions about their retirement savings, including reinvestment into their own businesses. The President’s plan means that all participating workers, including the self-employed, will be able to build a retirement based on their individual needs and then pass along accumulated wealth to the next generation.
We are increasingly a nation of entrepreneurs. Small businesses represent 99% of all employers, employ half of all private sector employees, and have generated over 60% of all new jobs created in the past decade. The fast paced growth of self-employment in all segments of the population is most striking among women, Hispanics and African Americans. And the trend shows no signs of slowing. Recent studies indicated that an impressive 65 percent of 14-19 year olds want to start their own businesses some day.
Without a doubt, the nation’s workforce is changing and the systems we have created to provide retirement security for every American must change with it. If Social Security is to be fixed in a way that provides parity to the county’s self-employed, and it simply must be, voluntary personal retirement accounts are central to that effort.
