New Surplus Projections Could Mean Easier Route to Privatization
November 23, 2000
The Wall Street Journal reported last week that the Congressional
Budget Office is considering increasing its economic growth projections
for the next ten years, increasing projected budget surpluses by $1 trillion
or more. This could raise the total projected 10-year surplus to $5.5 trillion,
creating the opportunity to establish larger personal retirement accounts as
part of Social Security reform. The larger these accounts are, the easier the
long-term solution to the Social Security crisis becomes.
The CBO released its most recent 10-year surplus projection of $4.561 trillion
in July. Each 0.1 percentage-point increase in economic growth over the projected
2.7 percent annual rate increases the 10-year surplus by approximately $211
billion. Should the economy grow at an annual rate of 3.3 percent, as the Journal
reports the CBO to be considering, that increased economic activity would add
over $1.2 trillion in tax revenues to government coffers.
Despite the many advantages of full Social Security privatization, many proponents
of personal retirement accounts for Social Security limit account contributions
to just 2 percent of wages. The reason is the so-called "transition cost": money
used to fund personal accounts is money that can’t be used for other purposes.
In an era of tight budgets some considered those costs too high, even though
they are far smaller than the future tax increases needed to keep the current
system solvent. But large unexpected budget surpluses make it possible to fund
personal retirement accounts with substantially more than two percent of wages
without cutting current benefits or other current spending programs. By creating
larger personal retirement accounts, we can both keep the system solvent and
provide far higher benefits to future retirees.
But these surpluses may only appear if money is pre-allocated to personal accounts.
If Congress is given the opportunity, it could easily squander that extra cash
on annual budget binges, leaving Social Security unreformed for the future.
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