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April 27, 2005
Rep. Paul Ryan and Sen. John Sununu Throw Bush a Lifeline
The question is will he take it?
Ryan and Sununu reintroduced their legislation to reform Social Security last week in an attempt to get more support for their proposal. I personally think that if the White House would support this bill it would have a good chance of passing. Strong points include 1) progressive private retirement accounts ensuring that low income workers can accumulate a substantial amount of assets, 2) a setup that directly ties private accounts to solvency, and 3) according to the Social Security actuaries it turns deficits into true surpluses by 2038 and accomplishes full solvency by 2051.
Here are some highlights:
- From 2006-2015, the Ryan-Sununu legislation would allow workers to devote to tax-free personal accounts 5 percentage points of the current 12.4% Social Security payroll tax on the first $10,000 in wages and 2.5 percentage points on taxable wages above that. Starting in 2016, workers will then be able to shift 10 percentage points of the current 12.4% on the first $10,000 in wages and 5 percentage points on taxable wages above that. Once fully phased-in, this creates a progressive structure with an average account contribution among all workers of 6.4 percentage points.
- Workers age 55 and over would remain covered under the traditional Social Security system with no change in benefits.
- Workers will be enrolled in a “life-cycle” fund that automatically adjusts the worker’s portfolio based on his or her age - moving near-retirees into safe, government-backed bond funds. Workers may stay with this “life-cycle” fund or choose from a list of five index funds similar to those found in the federal Thrift Savings Plan (TSP).
- The accounts are backed up by a guaranteed minimum benefit equal to Social Security promises under current law.
- Survivors and disability benefits would continue as under the current system unchanged.
- Social Security and the reform’s transition financing are placed in their own separate Social Security budget, apart from the rest of the Federal budget.
and here is its affect on solvency:
- Permanent and growing surpluses begin in 2038.
- Permanent solvency achieved in 2051.
- The reform would also greatly increase and broaden the ownership of wealth and capital through the accounts. All workers could participate in our nation’s economy as both capitalists and laborers. Under the Chief Actuary’s score, workers would accumulate $7 trillion in today’s dollars in their accounts by 2020. Wealth ownership throughout the nation would become much more equal, and the concentration of wealth would be greatly reduced.
- The official score shows that by the end of the 75-year projection period, instead of increasing the payroll tax to over 20% as would be needed to pay promised benefits under the current system, the tax would be reduced to 5.18%, enough to pay for all of the continuing disability and survivors’ benefits. This would be the largest tax cut in U.S. history. The bill includes a payroll tax cut trigger providing for this eventual tax reduction once all transition financing and debt obligations have been paid off.
- The reform also achieves the largest reduction in government debt in U.S. history, by eliminating the $12 trillion unfunded liability of Social Security, which is almost three times the current reported national debt.
This is a no-brainer to me... but then again I'm not a politician. That's a fact I'm prouder and prouder of after watching one group of Senators on the Finance Committee deliberately twist facts for political gain, while the rest don't even have the backbone to call them on their dishonesty.
Posted by Peter Mork at April 27, 2005 9:56 AM
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