Cover Letter on Social Security Reform

I am pleased to provide you with the Committee's views on Social Security, Tax Reform and Health Care Finance. Our comments include our reaction to the President's proposals in the budget and the State of the Union Message. We have several questions for further research, which are also included, which we request your help in answering.

The Committee believes that a global approach to these issues is essential, as each of these issues has a significant impact on the other. For example, the decision on whether to raise the Social Security earnings cap impacts both income tax policy and debt management, especially in light of the President's proposal to bypass an explicit change in the cap by dedicating the surplus to the trust fund. Note that the surplus was largely created by increasing taxes on the wealthy.

We compliment the President on his commitment to progressively fund his proposed USA Accounts. By doing so, he draws a line in the sand on how any privatization will occur. We agree with Michael Tanner's published statement that, having opened Pandora's Box by creating a private saving component, some form of partial and then full privatization is inevitable. However, making USA Accounts progressive signals that all such efforts at privatization must remain as progressive as the current system.

Once privatization is regarded as inevitable, we believe organized Labor will step up to the plate and demand that member accounts be incorporated into the existing pension fund structure, and that these funds be increasingly invested in employer companies, changing the rank-and-file to the largest stockholder group.

I have attached a detailed position paper on our views on these issues. In summary, we favor the following reforms:

· privatizing the Old Age and Survivors Trust fund over a 40 year period, with a uniform employer contribution for each worker (equal to the national average contribution) and an employee contribution based on income, to an individual and/or collective bargaining unit managed retirement account(s) with employer funding of administrative costs;

· replacing non-retirement payroll taxes, corporate income taxes and personal income taxes at the 15%, 28% and 31% levels with a Business Income Tax to fund all defense, domestic discretionary, Medicare and non-retirement entitlement spending;

· retaining personal income tax obligations for all individual income taxed at the 36% and 39.6% rates to fund interest on the debt and debt retirement and

· instituting Medical Lines of Credit and Medical Savings Accounts for all federal health care beneficiaries.

Our proposal raises several interesting questions for further research. The main body of research questions is attached. We feel that the most important research question is,

For various ages/incomes, what is the impact on individual account balances v. expected lifetime benefits of crediting an equal employer contribution (at the national average) to each employee working the minimum per quarter v. the current employer contribution which matches the employee contribution dollar for dollar?

We believe the answer to this question could profoundly shift the debate on privatization. Please contact me, so that we can address these issues further. Again, thank you for the opportunity to address these issues.