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Gore to Unveil New Proposals on Social Security, USA Accounts
June 12, 2000
The Wall Street Journal reports Friday that Vice President Al Gore is
considering proposals "to nearly eliminate the long-term Social Security deficit,"
while reviving the administration's plan for supplemental Universal Savings
Accounts (USAs). Gore is expected to unveil his plans on Tuesday, June 13.
On substance, it is difficult to determine precisely how Gore's extended solvency
plans would function. Gore already proposes to use payroll tax and general revenue
surpluses to retire the public debt, generating interest savings of approximately
$220 billion annually. This, he claims, would keep the trust fund solvent until
2055. (It is worth noting that adding an extra $220 billion annually to Social
Security would keep its cash flow positive only an additional six years, from
2015 to 2021. Beyond that, trust fund bonds must still be redeemed, requiring
tax increase, spending cuts or a budget deficit.) However, if there is no more
public debt to be retired, it is unclear where Gore will put this extra money.
Finally, the Journal quotes the total cost for both the solvency and
the USA initiatives at just $750 billion. Between 2055-2075, Social Security's
payroll tax deficit exceeds 10.4 trillion in today's dollars. Even assuming
$750 billion were invested until 2055 at the government bond rate, it would
make up less than half that deficit.
Government agencies such as the Congressional Budget Office and the General
Accounting Office have been blunt in their criticism of the previous Gore proposal
to maintain solvency until 2055, saying that it is heavy on bookkeeping tricks
and light on reform. But if bookkeeping tricks are sufficient to maintain the
pretense of saving Social Security until 2055, there seems little reason for
Gore not to proceed all the way to 2075.
Gore also proposes to revive the Clinton administration's Universal Savings
Accounts, designed as subsidized investment vehicles for lower income workers.
USAs would use government funds to match worker contributions to accounts similar
to 401(k)s or IRAs. The proposal would cost from $200 to $250 billion.
While increasing savings for low-income workers is a good thing, USA accounts
have several flaws. First, because they are added to Social Security rather
than utilizing payroll tax funds, they do not raise social security's return
to workers, nor do they do anything to save the system for the future. Second,
research shows that lower-income workers are much less likely to participate
in voluntary savings programs like 401(k)s, even when matching funds are available.
For more information, see Darcy Olsen's "Social Security Reform Proposals: USAs,
Clawbacks, and Other Add-Ons."
And third, USA accounts are subject to the same criticisms that opponents
of reform aim at personal retirement accounts as part of Social Security: if
personal accounts would have high administrative costs, then USA accounts -
which would be smaller - would have even higher costs. If workers are too ignorant
of the market to invest wisely, then the lower-income workers at whom USA accounts
are aimed would presumably suffer even more. And if the stock market is heading
for a near-term crash and long-term underperformance, then USA accounts would
lose out just as surely as personal accounts added to Social Security. In short,
if USA accounts are feasible, then personal accounts as part of Social Security
are even more so.
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