April 13, 2005

Analysis of Economic Data Since 1960 Shows PRA’s Would’ve Increased Retirement Security

The Heritage Foundation ran a study to see if today’s retirees would have been better of if GWB’s proposal to use Personal Retirement Accounts had been in use.

What if President Lyndon B. Johnson had erected an ownership society rather than a Great Society back in the mid-1960s? How would today’s retirees, most of whom were young workers at the time, be sitting today? How would the checks they’d be receiving stack up against those they get now from Social Security?

They used actual economic data from the past 40 years:

This approach is novel because, unlike most other research, our analysis uses actual rates of return for stocks and bonds over the course of those 40 years. Since the mid-1960s, the economy has withstood six recessions. It has weathered wage-and-price controls in the early 1970s, stagflation in the late 1970s and the bursting of the Internet bubble. Yet, through all this, the markets have appreciated in value sufficiently to add thousands of dollars to these PRAs.

The results: PRA’s would’ve been substantially better:

We at The Heritage Foundation’s Center for Data Analysis consider several different scenarios, and while the numbers differed some, the conclusions were unarguable. An ownership society would have greatly increased the retirement security of these workers, as the case studies in the accompanying sidebars show. Our analysis comes to the following conclusions:

– New retirees with PRAs would receive incomes about 30 percent higher than they do now under Social Security.

– In some cases, the difference amounts to hundreds of dollars per month.

– These higher incomes more than offset the reduction in traditional Social Security benefits.

Senator To Introduce Bill to Prevent Federal Internet Tax

Senator George Allen (R-Virginia) is sponsoring the bill.

A U.S. senator announced Monday he will soon introduce a bill that would prevent Congress from extending a long-standing telecommunications tax to Internet access.

Senator George Allen, a Virginia Republican, said legislation is needed after Congress’ Joint Committee on Taxation in January suggested an expansion of a 3 percent federal excise tax (FET) on telecommunications to Internet traffic, including e-mail and data services. Allen plans to introduce his bill, which would exempt Internet access from the FET, early this week.

On the history of this tax:

The FET, first enacted in 1898 to fund the Spanish-American War, raises about US$6 billion a year for the U.S. government. At points during the last 107 years, the tax has been eliminated, reinstated, and raised to 25 percent. Congress made the tax, which applies to local and long-distance calls, permanent in 1990.

“We won the Spanish-American War over 100 years ago,” Allen said at a press conference. “This tax represents an unnecessary service tax on consumers.”

There are good reasons for the Senate to support the bill:

Asked why a bill was necessary to prevent a tax on Internet access that does not yet exist, Allen said it was important to head the idea off before it gains momentum. In addition to the Joint Committee on Taxation proposal, the U.S. Internal Revenue Service last July asked for public comments about whether VOIP should be subject to telephone taxes.

“It’s very important to put your flag in the ground and say, ‘we’re staking this territory—this hill will stay tax free’,” Allen said.

The Internet is an important factor in the growth of the U.S. economy, and it’s important to encourage its growth, said Allen and other speakers at the press conference, organized by the Computing Technology Industry Association (CompTIA). A 3 percent tax on Internet services will make it harder for Internet services reseller CTintegrators, based in Clifton, Virginia, to market its services to small businesses “slicing every penny,” said company president Tony Lachick.

“I try to make payroll every week,” Lachick said. “It’s a little harder when you start to add the taxes to that.”

You can send an email to Senator Allen supporting this bill here.