President Bush's Social Security Reform Commission
Updated 8/19/2003
President Bush's Commission to Strengthen Social Security met from May 2001 through December 2001.
The cost of Social Security benefits is projected to grow by a little more than 2 percent of GDP over the next 30 years. Policymakers will have to raise taxes, cut benefits, cut other government outlays, or tolerate increased deficits in that amount to maintain the current equilibrium. Those are bad choices.
A better approach would be to partially pre-fund Social Security, converting the program from a pure pay-as-you-go system (where taxes collected from workers contemporaneously pay the benefits of current retirees) toward a funded system where workers contribute in part toward their own retirement. Social Security reforms generally include higher outlays in the short term -- and corresponding sacrifices for society -- to help workers pre-fund individual investment accounts. Then, scheduled benefits could be reduced (compared with the entitlement promises currently in the law), which would relieve the burden on society in the future. Under plausible assumptions, workers could use the investment accounts to make up all or part of the reduction in promised benefits.
President's Commission to Strengthen Social Security homepage.
Interim Report of the Commission (35 pages). This is an excellent discussion of the situation facing Social Security, clear and easy to read. The only drawback to this report is that there is some political pandering to women, African-Americans, and Hispanic Americans, especially in the section titled "An Opportunity to Improve Social Security for Vulnerable Americans."
Final Report (256 pages). This report is more complex, not for the faint of heart. Its tables and language at various points seem sort of tortured, and although much of the work seems fair, the overall tone of the report seems a little political, even defensive at times. The report lays out 3 illustrative approaches. The first approach would allow workers to designate a percentage of their payroll taxes toward voluntary personal accounts, and subtract a corresponding amount from their guaranteed benefit. It would not solve the Social Security problem.
Options 2 and 3 would gradually restore Social Security to its current equilibrium. The second approach, would allow progressive personal accounts, and would cut future benefits by linking a retiree's initial benefit to inflation, rather than wage growth. The third approach would also have progressive personal accounts for workers who also agreed to pay an additional 1 percent of their payroll into their account. This approach would also trim the growth of initial benefits (but not as much as option 2) over time, and would also specifically shave replacement benefits for workers with high incomes.
Importantly, both options 2 and 3 would require considerable funds to launch personal accounts. The transition funding ranges from roughly $50-75 billion per year, for about 20 years. That is real money, which would increase the federal deficit if not offset in some manner. However, spending that money now to pre-fund the Social Security system would essentially prevent long-run imbalances from adversely affecting the next generations.
