NCPA - National Center for Policy Analysis


December 17, 2004

Implementing private savings accounts will involve transition costs, but lawmakers should not allow these to derail Social Security reform, says the Wall Street Journal.


  • At present tax and benefit levels, the increasing retiree-to-worker ratio will lead to a projected $11 trillion in unfunded liabilities -- the net debt from future promises made to seniors.
  • Allowing younger workers to invest some of their 12.4 percent Social Security tax in private accounts, where they could earn investment returns, would eliminate the fiscal gap over time.

Democrats have sought to sink Social Security reform as a result of the short-term transition costs involved with private savings accounts, says the Journal. However, there are ways to deal with transition costs:

  • Washington should issue Treasury bills to pay for the transition costs -- after all, the government owes this money from the trust fund anyways.
  • The transition to private savings accounts would result in a short-term increase in government borrowing, but would result in a long-term reduction in overall government liabilities.

Raising taxes, such as raising the amount of income the 12.4 percent Social Security tax is applied from $87,900 to $200,000, would hurt highly productive workers and small businesses. The result: fewer good-paying jobs and slower economic growth, says the Journal.

Source: Editorial, "Reform Wreckers," Wall Street Journal, December 10, 2004.

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