NCPA - National Center for Policy Analysis

A CRS Study Finds Government Investment Won't Save Social Security

January 15, 1999

Having the government invest 50 percent of Social Security trust funds in stocks and bonds will not solve the system's long-term financial problems, say Heritage Foundation analysts.

A December 1998 Congressional Research Service (CRS) study compared a July 1998 plan by Robert M. Ball, former Commissioner of the Social Security Administration, with legislative proposals introduced in the 105th Congress.

The Ball Plan would require the government to invest up to 50 percent of the Social Security trust fund in stocks. It would also increase the wage base and eventually shift government employees into the system. It also assumes that cost of living allowances (COLAs) would be reduced.

According to a recent Congressional Research Service (CRS) study entitled "Social Security Reform: Projected Contributions and Benefits Under Three Proposals,"

  • Government investment of half of the trust fund in the stock market would account for about 54 percent of the Ball Plan's long-term remedy for Social Security's problems.
  • Assuming the government investments earned an annual return of 6.4 percent, CRS found that "the Ball Plan would not eliminate the long-range deficit."
  • The only way the Ball Plan would work is if the trust fund investments earned an average return of 10.7 percent annually.

Otherwise, the CRS noted, "Assuming a smaller return would mean that the system would not be fully financed over the long run, and additional changes -- such as revenue increases or benefit cuts--would need to be considered."

However, the CRS analysis says mandatory individual Social Security accounts financed by the portion of Social Security taxes that is equal to 2 percent of income would solve Social Security's long-term financial problems while paying higher individual retirement benefits. That is the proposal embodied in the 21st Century Retirement Act (S. 2313/H.R. 4256) introduced by Senators Judd Gregg (R-N.H.) and John Breaux (D-La.) and Representatives Jim Kolbe (R-Ariz.) and Charles Stenholm (D- Texas).

Source: David C. John, "CRS Report Says Government Investment Won't Save Social Security, Executive Memorandum No. 565, December 21, 1998, Heritage Foundation, 214 Massachusetts Avenue N.E., Washington, D.C. 20002, (202) 546-4400.


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