NCPA - National Center for Policy Analysis

Comparing Proposals For Social Security Reform

September 28, 1999

The projected federal budget surplus offers an opportunity to reform Social Security and eliminate its current multi-trillion dollar unfunded liability, says a new study by the National Center for Policy Analysis (NCPA).

In the first comprehensive comparative analysis of major reform proposals before Congress, the NCPA study found that Social Security's future funding crisis can be averted by allowing workers to put some of their Social Security payroll tax dollars into personal retirement accounts invested in the private capital market.

The NCPA study analyzed reform plans proposed by Sens. Phil Gramm and Pete Domenici; Reps. Bill Archer and Clay Shaw; and a bipartisan proposal by Sens. John Breaux, Judd Gregg and Bob Kerrey in the Senate and Reps. Jim Kolbe and Charlie Stenholm in the House. In addition, the study analyzed a proposal offered by the NCPA in conjunction with the Private Enterprise Research Center (PERC) at Texas A&M University.

The plans analyzed 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.

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 and require much lower tax rates than are projected under the current system.

Source: Liqun Liu and Andrew J. Rettenmaier, "Comparing Proposals for Social Security Reform," NCPA Policy Report No. 227, September 1999, National Center for Policy Analysis, 12655 N. Central Expy., Suite 720, Dallas, Texas 75251, (972) 396-6272.

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