New America Foundation Announces Nonpartisan Reform Plan

December 28, 2005

The New America Foundation announced the release of a nonpartisan plan for reforming Social Security, aimed at showing lawmakers that, contrary to popular opinion, compromise is possible. The plan's authors include Maya MacGuineas, director of the fiscal policy program at the foundation; Jeffrey Liebman, professor of public policy at Harvard's Kennedy School of Government and special assistant to President Clinton for economic policy; and Andrew Samwick, professor of economics at Dartmouth College and a member of President Bush's Council of Economics Advisers.

The plan includes a personal account component and also includes a reduction in future benefits, an increase in the payroll tax cap, and a raise in the retirement age. The announcement emphasized that the plan "puts great emphasis on fiscal responsibility."

The entire plan can be seen on the New America Foundation website, www.newamerica.net.

Although the plan is a first step toward compromise, several aspects of the plan might prove politically difficult. First and foremost, the accounts are quite small; they would be funded from only 1.5 percent of current payroll, and workers would be required to add an additional 1.5 percent of their wages. That would essentially be a 1.5 percent tax increase. Under this proposal, which is a blend of "carve-out" and "add-on" approaches, accounts are not optional, an element that will likely be unpopular. In addition, the entire account balance must be annuitized, making inheritability—one of the chief motivators for many supporters of reform—impossible. All told, however, the proposal is a solid attempt to show that Democrats and Republicans can bridge their differences to improve the system.

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