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Pastimes : Social Security
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To: miraje who started this subject12/7/2003 1:03:47 AM
From: Howard R. Hansen   of 11
 
On Monday December 1, 2003 on the editorial page of the Wall Street Journal a summary of a method for converting Social Security from a defined benefit pension plan to a defined payment pension plan with a guaranteed minimum benefit was presented. The highlights of the plan as I understand them are:
On the first $10,000 of earnings 10 percentage points of the 12.4 percentage points payroll tax would go into a personal retirement account.
On earnings between $10,000 and the maximum limit specified in current law for Social Security taxes 5 percentage points of the 12.4 percentage points payroll tax would go into a personal retirement account.
The personal accounts will be invested in a broad range of equity and bond funds managed by major firms and regulated by the government.
The system will be backed by a guarantee by the federal government a worker will receive at least as much as specified in current law.
Funds to pay the conversion cost will come from four sources.
1. One percent of total federal spending for the next 8 years would go to pay part of the conversion cost.
2. Existing Social Security income greater than is necessary to pay benefits under current law.
3. Selling long term bonds.
4. An increase in taxes from a larger revenue base produced by an increase in corporate earnings as a result of additional savings and capital investments.

Eventually, around 2055, if the personal accounts earn standard long term market rate of returns the personal accounts will take over Social Security retirement obligations.

After about 75 years 6.4 percentage points of the 12.4 percentage points payroll tax will continue to go into personal accounts, 3.5 percentage points of the 12.4 percentage payroll tax will pay Social Security disability and pre-retirement survivors benefits as specified by current law and 2.5 percentage points of the 12.4 percentage points payroll tax could be eliminated.

Between 2055 and 2080 the 2.5 percentage points of the 12.4 percentage points payroll tax that is not used to fund personal accounts and disability and pre-retirement survivors benefits would be used to pay interest on and to redeem the long term bonds specified in item 3 above.

See
ipi.org for a copy of the Wall Street Journal article and a copy of Social Security's analysis of the proposal.

From what I have seen so the proposal looks quite intriguing. However, because the math in the feasibility analysis is so complex I hope we get an analysis of the proposal by a liberal think tank so we can find out what the hidden gotchas are.
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