NCPA - National Center for Policy Analysis


November 23, 2004

There are few choices to close the Social Security deficit, and none are small or easy, says Matt Moore, a senior policy analyst with the National Center for Policy Analysis.

President Bush has proposed letting younger workers divert some of the payroll taxes they already pay to create personal retirement accounts.

  • This would offset some of what the government would otherwise pay them at retirement, reducing the government's obligations and the debt, without reducing workers' net benefit.
  • Workers could choose among a few safe funds, similar to the federal thrift savings plan for federal workers.

President Bush formed a commission to develop ways to structure and integrate a personal-investment component into Social Security.

According to an analysis of the plan by actuaries at the Social Security Administration, the plan would require an initial infusion $3 trillion over the next several decades but overall would save about $11 trillion and set the program on a path to fiscal sustainability.

Since the commission finished its work, critics have been busy. They worry about how low-income workers and inexperienced investors would fare. They worry about administrative costs, and invoke names like Enron and WorldCom. Proponents of personal accounts share these concerns. But there are responsible ways to structure the personal accounts to guard against potential pitfalls.

The Social Security Administration, the General Accounting Office and others have developed ways to structure the accounts to maximize returns and protect investors, says Moore:

  • Administrative fees could be kept low by limiting options and structuring personal-retirement accounts carefully.
  • Inexperienced investors could be protected by being offered three to five government-approved index funds.
  • Low-income workers could be aided through matching grants or refundable tax credits.

Source: Matt Moore, "Bush steps up to protect Social Security," Providence Journal, November 22, 2004.

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