Washington – (September 27, 1999) – The projected federal budget surplus offers a rare opportunity to reform Social Security and eliminate its current multi-trillion dollar unfunded liability, a new study released by the National Center for Policy Analysis (NCPA) says.
In the first comprehensive comparative analysis of major reform proposals before Congress, the NCPA study found that the future funding crisis in Social Security can be averted by allowing workers to put a portion of their Social Security payroll tax dollars into personal retirement accounts to then be invested in the private capital market.
"Social Security can be saved without raising the taxes of workers or cutting the benefits of seniors," said NCPA President John Goodman.
The NCPA study analyzed the reform plans proposed by Sens. Phil Gramm and Pete Domenici; Reps. Bill Archer and Clay Shaw; and a bipartisan proposal made by Sens. John Breaux, Judd Gregg and Bob Kerrey in the Senate and Reps. Jim Kolbe and Charlie Stenholm in the House. In addition to these plans, which are currently before Congress, the study analyzed its own reform proposal offered in conjunction with the Private Enterprise Research Center at Texas A&M (PERC). All of the plans analyzed in the study would institute private retirement accounts.
The plans differ in the extent to which personal retirement accounts replace Social Security benefits.
- Under the Archer-Shaw plan, young people entering the workforce today would rely on their personal retirement accounts for about half of their Social Security benefits.
- Under the Gramm-Domenici plan, today's young workers would rely on their personal retirement accounts for two-thirds of their Social Security benefits.
- By mid-century under the bipartisan plan, retirees would rely on their accounts for about 70 percent of their benefits; however, those benefits would be significantly smaller because of increases in the retirement age and adjustments in the benefit formulas.
The study found that although the short-term cost of funding the transition to personal retirement accounts is high – requiring almost all of the budget surplus – changing the system now will more than pay for itself. This method of funding retirement would also prevent a crushing tax burden for workers that will occur if nothing is done – eventually 19% of payroll for Social Security alone, and double that if Medicare and other health care programs are included.
- Under the Archer-Shaw plan, taxes needed to pay for Social Security in 2070 would be 10% of payroll, instead of 19%.
- Under the bipartisan plan, the tax burden in 2070 would be 8.2%, and under Gramm-Domenici, it would be 7.1%.
Said Goodman: "These plans have different degrees of success, but they're all better than doing nothing."