Comparison Of Social Security Plans
October 30, 2000
Under both the Bush and Gore Social Security reform plans, the Social Security surplus will disappear about the time the baby boomers begin to retire. According to a forthcomming NCPA study produced under the direction of Thomas R. Saving, a newly appointed trustee of the Social Security system, how we spend the surplus today will have a large impact on Social Security's solvency when today's young people retire.
Vice President Al Gore would use the surplus to buy down government debt and would eliminate the government's annual interest payments. Gore proposes to use this savings to pay future benefits in lieu of higher payroll taxes.
Texas Gov. George W. Bush would allow workers to deposit the surplus in personal retirement accounts. Investing in the market would earn a higher rate of return than the current system offers and will partially replace the government's obligation to pay retirement benefits.
According to the draft study:
- Using the Congressional Budget Office's long-term forecasts, the payroll tax needed to pay benefits under the current system will rise from 12.4 percent today to 19 percent by 2050.
- With Bush's personal retirement accounts, Social Security obligations can be met in 2050 with about the same payroll tax we have today.
- Under the Gore plan, the government will have to start borrowing again by 2022 and we will have the same debt by 2029 -- because the Gore plan does not change the structure of the current system or alter the government's obligations.
Under the Gore plan, payroll taxes will have to rise to 19.6 percent by 2050 and 21.3 percent by 2070 -- almost twice the tax rate needed under the Bush plan. By 2050, if payroll taxes are not raised and benefits are not cut, the country will have four times as much outstanding debt as under the Bush plan. By 2070, we will have 35 times as much debt.
Source: Liqun Liu and Andrew J. Rettenmaier, "Saving the Surplus," (draft study), October 26, 2000, National Center for Policy Analysis.
Browse more articles on Tax and Spending Issues