NCPA PLAN TO SAVE SOCIAL SECURITY WITHOUT ILLUSIONS
New Plan That Spells Out Completely How to Fund Transition to Funded System
of Personal Accounts
Thursday, December 9, 2004
Contact: Sean Tuffnell or Richard Walker
800-859-1154 Sean.Tuffnell AT ncpa.org
DALLAS (December 9, 2004) The National Center for Policy Analysis (NCPA)
unveiled today a groundbreaking new plan to reform Social Security that for
the first time explicitly spells out how to fund the transition from the
current pay-as-you-go system to a retirement program that is fully funded.
Social Security reform is stuck in a tug of war between those that want to
do nothing and those that believe we can have a free lunch, said NCPA
Senior Fellow Thomas R. Saving, director of the Private Enterprise Research
Center at Texas A&M and a Social Security Trustee. This plan recognizes
that Social Security must be reformed and that tough choices will have to
be made in order to do it.
Social Security reform is at the top of President Bushs agenda. And with
good reason. In the next decade, two monumental shifts will occur:
* 77 million baby boomers will start drawing benefits and stop paying
taxes.
* Social Security and Medicare will claim an increasing share of
federal income tax revenues, reaching almost 30 percent by 2020 and more
than 50 percent by 2030.
To avoid this unpleasant and unsustainable future, we must move quickly to
a funded system, under which each generation pays its own way, said
Saving. The transition to a new system will not be easy, but each year we
delay increases the cost of making it.
The NCPA reform plan is the only proposal so far that is fully paid for and
does not require borrowed money; maintains the progressivity of the current
system; and replaces todays pay-as-you-go system with a fully funded
system after one generation. Specifically,
* All people who are working and have not yet reached the retirement
age will be given the option to put part of their payroll taxes into a
personal retirement account (PRA), with lower-income workers being able to
deposit more than higher-income workers.
* In exchange, workers must make their own additional contribution of
1.25 percent of wages, to be matched by their employer. Roughly speaking,
for every $1 contributed by an average-income worker, $3 will be
contributed by someone else (the employer and payroll taxes that otherwise
would have gone to the government). For every $1 contributed by
lower-income workers, $7 will be contributed by someone else.
* Initially employees and their employers could be allowed to meet
their additional PRA contribution requirements by diverting contributions
currently made to defined contribution plans, including 401(k) plans, for
the first five years. Small businesses could also be allowed a years delay
before matching their employees contributions.
* Deposits to the PRA accounts will be fully funded by expected Social
Security surpluses, the Social Security Trust Fund, and additional savings
by employees and employers.
* After about three decades, the reformed Social Security system will
be self-financing. The youngest workers will fully fund their own
retirement, relying on government only if their retirement incomes fall
below 150 percent of poverty.