Gore Retirement Accounts Could Prove More Expensive

July 10, 2000

The June 19 issue of Social Security This Week reported on Vice President Gore's proposal to establish subsidized voluntary investment accounts to supplement Social Security, at a reported cost of $200 billion over ten years. Once concern was that low-income workers, even those receiving a 3-to-1 match on their voluntary contributions, could not afford the extra savings necessary to start their accounts. Now, analysis from the House Budget Committee indicates that if all eligible workers took part, the program would cost far more than the Gore campaign has estimated.

Using Internal Revenue Service tax data, Budget Committee analysts assumed that all non-dependent taxpayers under the age 65 with wage and salary income would contribute the maximum amount necessary to receive the maximum government matching contribution. The accompanying tables show the contributions and government matches for single and joint tax filers at different income levels.

If all eligible workers contribute the maximum allowed to obtain the government match, the government savings subsidies could exceed $120 billion annually, far exceeding the $20 billion estimate from the Gore campaign. Even if worker savings were not so high, costs could still exceed expectations. For instance, if workers contributed 2 percent of their wages up to the maximum allowed, government matching subsidies could still top $46 billion per year (see the "low cost estimate" below).

A possible conclusion is that there is an inconsistency between the cost of the Vice President's Retirement Plus accounts and the benefits they purport to deliver to low-income workers. If many workers choose to participate, then costs could greatly exceed expectations. And if costs are to remain within estimates, then we must assume that only a fraction of workers eligible will actually take part and build savings.

Cato Social Security Analyst Andrew Biggs wrote in the Washington Post Thursday that while Vice President Gore's plan to establish voluntary subsidized investment accounts as a supplement to Social Security is "tacit acknowledgment that the stock market is not too risky, nor administrative costs too high, nor investors too ignorant for tax dollars to be invested in personal accounts ... the Gore plan would not put off Social Security's insolvency, increase its rate of return or reduce its multitrillion-dollar unfunded liability." This new analysis from the House Budget Committee indicates that the Gore plan would do even less than advertised.

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