A BETTER DEAL AT HALF THE COST

June 9, 2005

The Individual Social Security Investment Program Act (H.R. 530) will eliminate Social Security's long-term deficit and restore solvency to the system at half the cost than maintaining the existing program, according to the Social Security Administration (SSA).

Introduced by Reps. Sam Johnson (R-Texas) and Jeff Flake (R-Ariz.), H.R. 530 is based on the Cato Institute's "6.2 Percent Solution." It would create personal retirement accounts for people under the age of 55 and credit present depositors with a zero-coupon bond that matures on their retirement date.

Moreover, the plan would yield results that are "fiscally responsible, and protect future generations of workers and taxpayers," says Michael Tanner, Director of Health and Welfare Studies at Cato.

  • By 2046, the created surplus would enable short-term debt to be paid.
  • At the end of the 75-year window, surpluses would exceed $1.8 trillion.
  • The rates of return for equities, government bonds, and corporate bonds are estimated at 6.5, 3 and 3.5 percent respectively.
  • The tax burden for payroll would peak at 17.06 percent in 2028, eventually declining to just 3.11 percent; if the current method remains, the burden will increase from 11.13 to 19.08 percent by 2078 and continue to rise.
  • The proposal would save taxpayers $6.3 trillion.

Additionally, government's role would be reduced to providing disability benefits and protection for seniors against poverty. Overall, a majority of workers would be saving for their own retirement, taking control of their lives, says Tanner.

Furthermore, younger workers could receive higher retirement resources if they chose the individual account option, women and minorities would be treated fairly, and low-income workers could accumulate real wealth, says Tanner.

Source: Michael Tanner, "A Better Deal at Half the Cost: SSA Scoring of the Cato Social Security Reform Plan," Cato Institute, April 26, 2005.

For text:

http://www.cato.org/pubs/briefs/bp92.pdf

 

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