GAO

United States General Accounting Office

Report to Congressional Requesters

November 1999 SOCIAL SECURITY

Evaluating Reform 

Proposals

GAO/AIMD/HEHS-00-29

Page 1 GAO/AIMD/HEHS-00-29 Social Security Reform Proposals

United States General Accounting Office

Washington, D.C. 20548

Comptroller General

of the United States

B-283957 Leter

November 4, 1999

Congressional Requesters

This report responds to your request that we analyze the potential 

budgetary and economic effects of several Social Security reform 

proposals, together with the Social Security framework outlined by the 

President and his Universal Savings Account (USA) proposal. We agreed to 

examine how these proposals balance adequacy and equity concerns and 

provide for reasonable implementation and communication of any 

changes. A wide array of proposals has been put forth to restore Social 

Security's long-term solvency, reflecting different perspectives on and 

approaches to addressing the program's financing problem. 

As requested, we examined the following reform proposals: (1) the Social 

Security Guarantee Act outlined by Ways and Means Committee Chairman 

Bill Archer and Social Security Subcommittee Chairman Clay Shaw,

(2) H.R. 1793, the 21st Century Retirement Security Act, (3) the Senate 

Bipartisan bill announced by Senators Judd Gregg, Bob Kerrey, John 

Breaux, and Chuck Grassley, (4) the Social Security plan outlined by 

Budget Committee Chairman John Kasich, and (5) the Social Security 

framework outlined by the President, including the USA proposal. On 

October 13, 1999, we briefed your offices on the results of our analysis. Our 

briefing, updated to reflect the President's October 26, 1999, Social Security 

financing proposal, is reprinted in appendix I. We conducted this work 

from August 1999 through October 1999 in accordance with generally 

accepted government auditing standards.

As agreed with your offices, our assessments of the reform proposals are 

based on the analytic framework we provided to the Congress last March.1

That framework consists of three basic criteria: 

• the extent to which the proposal achieves sustainable solvency and how 

it would affect the economy and the federal budget,

1

Social Security: Criteria for Evaluating Social Security Reform Proposals

(GAO/T-HEHS-99-94, March 25, 1999).
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Page 2 GAO/AIMD/HEHS-00-29 Social Security Reform Proposals

• the balance struck between the twin goals of income adequacy (level 

and certainty of benefits) and individual equity (rates of return on 

individual contributions), and

• how readily such changes could be implemented, administered, and 

explained to the public.2

In evaluating each of the proposals against the three basic criteria, we used 

a set of detailed questions, which can be found in the appendix to this 

letter, that help describe potential effects of reform proposals on important 

policy and operational aspects of public concern.

As you requested, we used our long-term economic model in evaluating the 

various proposals against the first criterion, that of financing sustainable 

solvency. Specifically, we used this model to simulate the potential fiscal 

and economic impacts of each proposal over a 75-year projection period. 

We offer these simulation results not as precise forecasts but rather as a 

useful way to compare the potential outcomes of alternative policies within 

a common economic framework. Although any proposal's ability to achieve 

and sustain solvency is sensitive to economic and budgetary assumptions, 

using a common framework can facilitate comparisons of alternative 

reform proposals. Since 1992, we have provided the Congress with a longterm perspective by modeling the implications of differing fiscal policy 

paths for the nation's economy.3

 For these paths we use the Trustees' 

intermediate estimates for Medicare and Social Security spending; in other 

respects, we generally rely on the Congressional Budget Office's (CBO) 

fiscal and economic assumptions. 

2

Social Security Reform: Implementation Issues for Individual Accounts

(GAO/HEHS-99-122, June 18, 1999) and Social Security Reform: Administrative Costs for 

Individual Accounts Depend on System Design (GAO/HEHS-99-131, June 18, 1999).

3

For more information on GAO's long-term model, see Budget Issues: Long-Term Fiscal 

Outlook (GAO/T-AIMD/OCE-98-83, February 25, 1998).
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In simulating the reform proposals, we relied on income and cost estimates 

prepared by the Office of the Actuary at the Social Security Administration 

(SSA), and we adapted the model as appropriate to reflect specific reform 

proposal provisions. We considered each proposal in isolation. That is, we 

did not include any other proposals made by reform sponsors or the 

President that would have other fiscal effects, such as proposed non-Social 

Security related tax cuts or spending increases. For the President's 

financing proposal, we analyzed the transfers as specified in his October 

1999 proposal−the Strengthen Social Security and Medicare Act of 1999.4

That administration proposal does not include USAs. Since we did not have 

sufficient data to simulate USAs, we provide a qualitative evaluation. As 

you requested, our simulation results also compare each proposal with 

alternative fiscal policy paths developed in our prior model work. 

We used qualitative research to examine how well the proposals balance 

adequacy and equity concerns and provide for reasonable implementation 

and communication of any changes. In so doing, we relied on GAO's issued 

and ongoing body of work on Social Security reform. This work addresses 

various issues raised by reform approaches, including establishing 

individual accounts, raising the retirement age, and the impact of reforms 

on minorities and women.5

The use of these criteria to evaluate various reform proposals highlights the 

trade-offs that exist between efforts to achieve solvency for the Old Age 

and Survivors Insurance and Disability Insurance (OASDI) trust funds and 

to maintain adequate retirement income for current and future 

beneficiaries. For example, proposals that achieve solvency by reducing 

current-law benefits and establishing individual accounts will result in 

4

For our evaluation of the President's January proposal, see Social Security: What the 

President's Proposal Does and Does Not Do (GAO/T-AIMD/HEHS-99-76, February 9, 1999), 

and Social Security and Surpluses: GAO's Perspective on the President's Proposals

(GAO/T-AIMD/HEHS-99-96, February 23, 1999). For our observations on the President's 

Midsession Review, see Federal Budget: The President's Midsession Review

(GAO/OCG-99-29, July 27, 1999).

5

See Social Security: Individual Accounts as an Element of Long-Term Financing Reform

(GAO/T-HEHS-99-86, March 16, 1999); Social Security Reform: Implications of Private 

Annuities for Individual Accounts (GAO/HEHS-99-160, July 30, 1999); Social Security: Issues 

in Comparing Rates of Return With Market Investments (GAO/HEHS-99-110, August 5, 

1999); Social Security Reform: Implications of Raising the Retirement Age

(GAO/HEHS-99-112, August 27, 1999); Social Security Reform: Implications for Women

(GAO/T-HEHS-99-52, February 3, 1999); and Social Security and Minorities: Current Benefits 

and Implications of Reform (GAO/T-HEHS-99-60, February 10, 1999).
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greater uncertainty and variability in retirement income levels among 

similarly situated individuals. In addition, any proposal that would 

guarantee benefits and rely on enhanced rates of return on individual 

accounts to finance long-term solvency may create certain contingent 

liabilities that could serve to increase the deficit over the long term. 

Further, in any reform proposal, attention must be paid to the impact on 

poverty among the elderly. 

We requested comments on a draft of this report from the Social Security 

Administration. SSA provided technical comments, which we have 

incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until tomorrow. At that 

time, we will send copies to the Honorable Bill Archer, Chairman, and the 

Honorable Charles B. Rangel, Ranking Member, House Ways and Means 

Committee; the Honorable Clay Shaw, Chairman, and the Honorable

Robert T. Matsui, Ranking Member, Subcommittee on Social Security, 

House Ways and Means Committee; other interested congressional 

committees; the Honorable Kenneth S. Apfel, Commissioner of Social 

Security; and the Honorable Lawrence Summers, Secretary of the Treasury. 

Copies will be made available to others upon request. 

If you or your staffs have any questions about this report, please contact 

Cynthia M. Fagnoni, Director, Education, Workforce, and Income Security 

Issues, on (202) 512-7215 or Paul L. Posner, Director, Budget Issues, on 

(202) 512-9573.

David M. Walker

Comptroller General 

of the United States
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List of Requesters

The Honorable John B. Breaux

The Honorable Charles E. Grassley

The Honorable Judd Gregg

The Honorable Robert Kerrey

United States Senate

The Honorable John R. Kasich

The Honorable Jim Kolbe

The Honorable Charles W. Stenholm

House of Representatives
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Appendix I

Evaluating Social Security Reform Proposals ApendxIi

Evaluating Social Security Reform Proposals

Briefing for Congressional Requesters

GAO
Appendix I

Evaluating Social Security Reform Proposals

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2

Proposals Studied

• Archer-Shaw

• Kolbe-Stenholm, H.R. 1793

• Gregg-Kerrey-Breaux-Grassley, S. 1383

• Kasich

• President’s Social Security Transfer Proposal and the Universal

Savings Account (USA) Proposal
Appendix I

Evaluating Social Security Reform Proposals

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3

Criteria for Evaluating

Social Security Reform Proposals

The three basic criteria that provide policymakers with a framework

for assessing reform plans:

• Financing Sustainable Solvency

• Balancing Adequacy and Equity in the Benefits Structure

• Implementing and Administering Reforms
Appendix I

Evaluating Social Security Reform Proposals

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4

Evaluating Social Security Reform Proposals

• Comprehensive proposals can be evaluated against three basic

criteria.

• Reform proposals should be evaluated as packages that strike a

balance among individual reform elements and important interactive

effects.

• Some proposals will fare better or worse than other proposals under

each criterion.

• Overall evaluation of each proposal depends on the weight individual

policymakers place on each criterion.
Appendix I

Evaluating Social Security Reform Proposals

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5

Financing Sustainable Solvency

This criterion evaluates the extent to which the proposal achieves sustainable solvency,

 including how the proposal would affect the economy and the federal budget.

To what extent does the proposal:

• Reduce future budgetary pressures?

• Reduce debt held by the public?

• Reduce the cost of the Social Security system as a percentage of GDP?

• Reduce the percentage of federal revenues consumed by the Social Security

system?

• Increase national saving?

• Restore 75-year actuarial balance and create a stable system?

• Raise payroll taxes, draw on general revenues, and/or use Social Security trust fund

surpluses to finance changes?

• Create contingent liabilities?

• Include “safety valves” to control future program growth?
Appendix I

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6

Balancing Adequacy and Equity

To what extent does the proposal:

• Change current-law benefits for current and future retirees?

• Maintain benefits for low-income workers who are most reliant on Social

Security?

• Maintain benefits for the disabled, dependents, and survivors?

• Ensure that those who contribute receive benefits?

• Provide higher replacement rates for lower income earners?

• Expand individual choice and control over program contributions?

• Increase returns on investment?

• Improve intergenerational equity?

This criterion evaluates the balance struck between the twin goals of income

adequacy (level and certainty of benefits) and individual equity (rates of return

on individual contributions).
Appendix I

Evaluating Social Security Reform Proposals

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7

Implementing and Administering Reforms

This criterion evaluates how readily such changes could be implemented,

administered, and explained to the public.

To what extent does the proposal:

• Provide reasonable timing and funds for implementation and result in

reasonable administrative costs?

• Allow the general public to readily understand its financing structure and

increase public confidence?

• Allow the general public to readily understand the benefit structure and avoid

expectation gaps?

• Limit the potential for politically motivated investing?
Appendix I

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8

Financing Sustainable Solvency

GAO’s Long-term Economic Model

• GAO’s long-term economic model is used to help assess the potential

fiscal and economic impacts of Social Security reform proposals.

• The economic model was originally developed by economists at the

Federal Reserve Bank of New York.

• The key interaction between the budget and the economy in the model

is the effect of the unified federal deficit/surplus on the amount of

national saving available for investment, which influences long-term

economic growth.
Appendix I

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9

Financing Sustainable Solvency

Interpreting Long-term Simulations

• Long-term simulations provide illustrations--not precise forecasts--of the relative

fiscal and economic outcomes associated with alternative policy paths.

• Long-term simulations are useful for comparing the potential outcomes of

alternative policies within a common economic framework over the long term.

– Recognizing the inherent uncertainties of long-term simulations, we have

generally chosen conservative assumptions, such as holding interest rates

and total factor productivity growth constant. Variations in these assumptions

generally would not affect the relative outcomes of alternative policies.

– The model simulates the interrelationships between the budget and the

economy over the long term and does not reflect their interaction during

short-term business cycles.

• Long-term simulations are not predictions of what will happen in the future. In

reality, policymakers likely would take action before the occurrence of the negative

out-year fiscal and economic consequences reflected in some simulated fiscal

policy paths.
Appendix I

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10

Financing Sustainable Solvency

Social Security Reform Proposals in the Model

• Reform proposal cost and income estimates are from SSA’s Office of the

Actuary.

– For each proposal, the OASDI cost estimate reflects all proposed reforms

affecting benefits. These include increases in the retirement age, reduced

COLAs, changes in the index used to adjust initial benefit levels, benefit

reductions meant to offset individual accounts, and other proposed

changes.

– For each proposal, the OASDI income estimate reflects such elements as

transfers from the general fund to the trust funds, the redirection of

revenue from the taxation of benefits from the HI trust fund to the OASDI

trust funds, and “carve-outs” from the payroll tax used to establish

individual accounts.

• For all reform proposals, on-budget revenue and spending reflect the

assumptions included in GAO’s no action path,1 adjusted for proposed reform

proposal changes affecting on-budget totals.

– Changes include transfers from the general fund to the OASDI trust

funds, tax credits used to fund individual accounts, and other provisions

that would affect on-budget totals.

1Assumptions underlying the no action path are shown in attachment I.
Appendix I

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11

Financing Sustainable Solvency

Alternative Fiscal Policy Simulations

• No action assumes no changes in current policies and thus results in saving the unified surpluses.

This assumption implies no emergency spending and actual spending that falls within the existing

discretionary caps. Thus, unified budget surpluses through 2029 are used to reduce debt held by

the public. Thereafter, deficits are permitted to emerge. Discretionary spending follows CBO’s 10-

year projections, which assume compliance with the spending caps through 2002 and growth with

inflation through 2008. Thereafter, we assume discretionary spending grows with the economy.

• Eliminate non-Social Security surpluses assumes that permanent unspecified policy actions (i.e.,

spending increases and/or tax cuts) are taken through 2009 that eliminate the projected on-budget

surpluses. Thereafter, these unspecified actions are projected through the end of the simulation

period. On-budget deficits emerge in 2010, followed by unified deficits in 2017.

• Long-term on-budget balance assumes that the on-budget surplus is eliminated through 2009, as

in the previous path. Thereafter, the on-budget portion is kept in balance by actions that cut

spending and/or raise revenue to prevent on-budget deficits from emerging. This results in a unified

surplus/deficit equal to the OASDI trust funds’ annual surplus/deficit through 2034 and equal to the

Social Security annual cash deficit thereafter.

Reform simulations are compared to several long-term simulations developed as part of GAO’s

ongoing model work. These simulations all assume payment of current-law Social Security

benefits using general revenues to supplement payroll tax financing.
Appendix I

Evaluating Social Security Reform Proposals

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12

Archer-Shaw

• No reduction in current-law benefit. Actual retirement income

could be higher depending on account balance.

• Mandatory “add-on” individual accounts equal to 2% of taxable

payroll. Worker chooses among several mutual fund options,

each 60% equities and 40% fixed income securities.

• Individual accounts are financed through a refundable tax

credit.1

 Payroll tax rates are reduced by 2.5 percentage points in

2050 and an additional 1 percentage point in 2060.2

• Benefit amount: benefit is either current law or payout based on

annuitized account balance, whichever is higher. Account

balance is gradually returned to OASDI trust funds to finance

benefits. Account balance is left to heirs if worker dies before

receiving benefits.

1Participants would not actually file for this credit on their tax returns; rather, it would be automatically

credited to their individual accounts.

2According to committee staff, this provision may be changed.
Appendix I

Evaluating Social Security Reform Proposals

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13

Archer-Shaw

Financing Sustainable Solvency

As illustrated in the following graphs, compared to No Action, the Archer-Shaw

proposal:

• Reduces projected unified surpluses and increases projected unified deficits as

a share of GDP through the middle of the next century, then reduces projected

unified deficits through the end of the simulation period. (Figure 1)

• Results in higher levels of debt held by the public until the final years of the

simulation period. (Figure 2)

• Has little impact on the net government cost of Social Security as a share of

GDP in 2030 but cuts the cost of the program roughly in half by 2074. (Figure 3)

• Lowers net Social Security spending slightly as a share of federal revenues in

2030. In 2074 program spending would consume about half as much of federal

revenues as in No Action--or about the same share of federal revenues as

today. (Figure 4)

Note: Social Security spending is net of the offset from the individual accounts.
Appendix I

Evaluating Social Security Reform Proposals

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14

Figure 1: Archer-Shaw

Unified Deficits/Surpluses as a Share of GDP

*Data end when deficits reach 10 percent of GDP.

-5

0

5

10

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

No action*

Long-term

on-budget balance

Eliminate non-Social

 Security surpluses *

Archer-Shaw

Deficit Surplus
Appendix I

Evaluating Social Security Reform Proposals

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15

Figure 2: Archer-Shaw

Debt Held by the Public as a Share of GDP

-50

0

50

100

150

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

No action

Long-term

on-budget balance

Eliminate non-Social

 Security surpluses *

*Data end when debt reaches 150 percent of GDP.

Archer-Shaw
Appendix I

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16

Figure 3: Composition of Spending as a

Share of GDP in 1998 and Under

No Action and Archer-Shaw

Revenue

*All other spending includes offsetting interest receipts in 2030 under no action.

**Net interest is .03 percent in 2030.

Note: Since a tax credit reduces revenue, revenue under Archer-Shaw is net of the tax credit for individual accounts.

Social Security spending is net of the offset from the individual accounts.

Archer-Shaw

0

10

20

30

40

1998 2030** 2050 2074

Social Security Health Net interest All other spending*

No action

0

10

20

30

40

1998 2030 2050 2074

Percent of GDP

Revenue
Appendix I

Evaluating Social Security Reform Proposals

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17

 1998 share

Figure 4: Social Security Spending as a Share of

Total Federal Revenue in 1998 and Under

No Action and Archer-Shaw

32.4 33.1

39.0

20.8 21.5 23.3

30.1

0

10

20

30

40

1998 2030 2050 2074

Percent of total federal revenue

 Archer-Shaw

Note: Since a tax credit reduces revenue, revenue under Archer-Shaw is net of the tax credit for individual accounts. 

Social Security spending is net of the offset from the individual accounts.

No action
Appendix I

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18

Archer-Shaw

Financing Sustainable Solvency

• Initially, no net effect on national saving. Government saving is reallocated to

private saving. The government captures a greater portion of the returns to

national saving through individual account investments in private equities.

Payroll tax reductions in 2050 and 2060 would reduce national saving.1

• Restores 75-year actuarial balance and produces a stable trust fund ratio at the

end of the 75-year projection period. Actuaries note that these results depend

greatly on the assumed yield on the individual account investments.2

• Finances individual accounts from general revenues by means of a refundable

tax credit. Returns to individual accounts determine magnitude of benefit offset.

Payroll tax reductions begin in 2050.3

• Creates a contingent liability through guarantee of current law benefits

regardless of individual account performance.

• Contains no new “safety valves” to control future program growth.

1Analysis limited to first order effects on saving. Effects on saving behavior in response to specific

reform provisions are not considered given the lack of expert consensus.

2The actuaries assumed an expected real portfolio yield of 5.35 percent net of administrative expense.

3 According to committee staff, this provision may be changed.
Appendix I

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19

Archer-Shaw

Balancing Adequacy and Equity

• Maintains current-law benefits for current and future retirees, including lowincome workers and others most reliant on Social Security.

• There are no changes to disabled, dependents, or survivor benefits.

• No change from the current OASDI structure in the way workers are covered.

Each covered worker receives an annual refundable tax credit that is invested in

an individual account.1

• The progressivity of the OASDI benefit structure remains unchanged. No

progressivity built into the individual account structure.

• Workers have some investment choice, subject to certain limitations.

• There is the potential for higher returns on investment. In most cases these

returns will be recaptured by the government.

• The move to advanced funding of Social Security may eventually improve

intergenerational equity.

1 Participants would not actually file for this credit on their tax returns; rather, it would be automatically

credited to their individual account.
Appendix I

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20

Archer-Shaw

Implementing and Administering Reforms

• Funding for implementation is not explicitly discussed. The proposal provides

no time frames for implementation.

• Proposal’s estimate of 25 basis points may not be realistic, especially in the long

term.

• Tax credit financing of the system may be difficult to explain.

• The “offset” feature of the proposal must be clearly explained; otherwise retirees

may expect a larger return than the proposal actually provides, potentially

creating an “expectations gap.” An education program will be necessary.

• The proposal establishes a Social Security Board to oversee fund management.
Appendix I

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21

Kolbe-Stenholm, H.R. 1793

• Social Security defined benefits are generally reduced from current law.

A new minimum benefit above current law is added, and formula

changes increase progressivity of benefit structure.

• Individual mandatory “carve-out” accounts equal to 2% of taxable payroll.

Additional voluntary contributions are allowed up to $2,000 annually.

Lower income earners are also eligible for partial government match and

may use EITC to contribute. Investment framework is modeled after

Federal Thrift Savings Plan.

• Additional financing from (a) general revenues due to changes in cost-ofliving adjustment and (b) revenues from taxation of Social Security

benefits currently used to finance Medicare.

• At retirement, worker may purchase annuity or request monthly pay-out.

If monthly pay-out plus Social Security benefit guarantee a lifetime

income equal to poverty level, balance in excess of this requirement may

be withdrawn. At death, balance may be left as lump sum or rolled over.
Appendix I

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22

Kolbe-Stenholm, H.R. 1793

Financing Sustainable Solvency

As illustrated in the following graphs, compared to No Action, the Kolbe-Stenholm,

H.R. 1793, proposal:

• Reduces projected unified surpluses through about 2020, then maintains unified

surpluses that average about 1.6 percent of GDP through the end of the

simulation period. (Figure 5)

• Results in slightly higher debt held by the public in the short run. Debt held by

the public eliminated about 2013 and long-run financial position of the

government significantly improved. (Figure 6)

• Lowers the cost of Social Security as share of GDP in 2030 by 1.6 percentage

points--about one fourth. Compared to No Action, the proposal cuts the cost of

the program roughly in half by 2074. (Figure 7)

• Lowers Social Security spending as a share of federal revenues in 2030 by

7 percentage points--about one fifth. In 2074, program spending would

consume about half as much of federal revenues as in No Action--or about the

same share of federal revenues as today. (Figure 8)
Appendix I

Evaluating Social Security Reform Proposals

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23

-5

0

5

10

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

Figure 5: Kolbe-Stenholm, H.R. 1793

Unified Deficits/Surpluses as a Share of GDP

*Data end when deficits reach 10 percent of GDP.

No action*

Kolbe-Stenholm

Long-term on-budget balance

Eliminate non-Social

Security surpluses*

Deficit Surplus
Appendix I

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24

-50

0

50

100

150

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

Figure 6: Kolbe-Stenholm, H.R. 1793

Debt as a Share of GDP

No action

Kolbe-Stenholm

Long-term

on-budget balance

Eliminate non-Social

Security surpluses*

*Data end when debt reaches 150 percent of GDP.
Appendix I

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25

Kolbe-Stenholm

0

10

20

30

40

1998 2030 2050 2074

Social Security Health Net interest All other spending*

Figure 7: Composition of Spending as a

Share of GDP in 1998 and Under

No Action and Kolbe-Stenholm

Revenue

*All other spending includes offsetting interest receipts in 2030 in no action and in 2030, 2050, and 2074 under Kolbe-Stenholm.

 Note: Since a payroll tax carve-out reduces revenue, revenue under Kolbe-Stenholm is net of the carve-out amount.

No action

0

10

20

30

40

1998 2030 2050 2074

Percent of GDP

Revenue
Appendix I

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26

Figure 8: Social Security Spending as a Share

of Total Federal Revenue in 1998 and Under

No Action and Kolbe-Stenholm

Note: Since a payroll tax carve-out reduces revenue, revenue under Kolbe-Stenholm is net of the carve-out amount.

32.4 33.1

39.0

20.8

25.4

20.1 20.4

0

10

20

30

40

1998 2030 2050 2074

Percent of total federal revenue

 1998 share No action Kolbe-Stenholm
Appendix I

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27

Kolbe-Stenholm, H.R. 1793

Financing Sustainable Solvency

• National saving would increase primarily due to the improved fiscal position of

the government resulting from the proposed benefit reductions. The carve-out

would increase private saving and decrease government saving with no net

effect on national saving. Saving subsidy for low-income workers could result in

some increase in national saving.1

• Restores 75-year actuarial balance and produces trust fund ratio that at the end

of the 75-year projection period is rising by about 6 percentage points per year.

• Finances individual accounts from payroll taxes. Government matching of

voluntary contributions by low-income workers funded from general revenues.

General revenue transfers in amounts reflecting COLA reductions are used to

help finance Social Security benefits. Redirects all revenue from taxation of

Social Security benefits to OASDI trust funds.

• Does not create contingent liabilities.

• Contains provision requiring SSA trustees to recommend statutory changes to

the program in the event of unforeseen deterioration in Social Security solvency.

1Analysis limited to first order effects on saving. Effects on saving behavior in response to specific

reform provisions are not considered given the lack of expert consensus.
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Kolbe-Stenholm, H.R. 1793

Balancing Adequacy and Equity

• Phases in reductions to current-law benefits by reducing the COLA, increasing the

NRA and ERA, increasing the number of years of earnings used to calculate

benefits, and the benefit computation period.

• Establishes a minimum benefit guarantee.

• Some of the changes in the way benefits are calculated could reduce disabled,

dependents, and survivor benefits.

• All workers under age 55 are covered by the proposal.

• Formula changes increase the progressivity of the OASDI benefit structure;

however, overall progressivity of the system becomes unclear given other

offsetting changes to the benefit structure. Individual account structure includes a

government match that decreases with income.

• There is potential for higher returns on investments; the risk is borne by the

individual.

• Workers have some investment choice, subject to certain limitations.

• The move to advanced funding of Social Security may improve intergenerational

equity.
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Kolbe-Stenholm, H.R. 1793

Implementing and Administering Reforms

• Funding for implementation is not explicitly discussed. The bill provides no time

frames for implementation.

• There is not enough information to allow an estimate of administrative costs.

• Financing structure of the system may be difficult to explain.

• The changes to the benefit structure may be difficult to explain. An education

program will be necessary.

• The proposal establishes an Individual Security Fund Board to oversee fund

management.
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Gregg-Kerrey-Breaux-Grassley, S. 1383

• Social Security defined benefits are generally reduced from current

law, but formula changes increase progressivity of benefit structure.

No changes to benefits for current and near-retirees.

• Mandatory individual “carve-out” accounts equal to 2% of taxable

payroll, with additional voluntary contributions allowed up to $2,000

annually. Lower and middle income earners are eligible for partial

match. KidSave accounts are established for each child at birth with

government contributions; these continue until child is age 5.

Investment framework modeled on Thrift Savings Plan.

• Additional financing from (a) general revenues due to changes in

cost-of-living adjustment and (b) portion of revenues from taxation of

Social Security benefits currently used to finance Medicare.

• At retirement, a benefit reduction is taken to reflect government

contributions to the individual account. Half of KidSave contributions

are included in calculating the offset. Account distributions and

treatment at death same as in Kolbe-Stenholm.
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Gregg-Kerrey-Breaux-Grassley, S. 1383

Financing Sustainable Solvency

As illustrated in the following graphs, compared to No Action, the

Gregg-Kerrey-Breaux-Grassley, S. 1383, proposal:

• Reduces projected unified surpluses through about 2020, then maintains unified

surpluses that average about 1.7 percent of GDP through the end of the

simulation period. (Figure 9)

• Results in slightly higher debt held by the public in the short run. Debt held by

the public eliminated about 2014 and the long-run financial position of the

government significantly improved. (Figure 10)

• Lowers the cost of Social Security as share of GDP in 2030 by 1.5 percentage

points--about one fifth. Compared to No Action, the proposal cuts the cost of

the program roughly in half by 2074. (Figure 11)

• Lowers Social Security spending as a share of federal revenues in 2030 by 6.7

percentage points--about one fifth. In 2074, program spending would consume

about half as much of federal revenues as in No Action--or about the same

share of federal revenues as today. (Figure 12)
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-5

0

5

10

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

Figure 9: Gregg-Kerrey-Breaux-Grassley, S. 1383

Unified Deficits/Surpluses as a Share of GDP

*Data end when deficits reach 10 percent of GDP.

No action*

GKBG

Long-term on-budget balance

Eliminate non-Social

Security surpluses*

Deficit Surplus
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-50

0

50

100

150

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

Figure 10: Gregg-Kerrey-Breaux-Grassley, S. 1383

Debt Held by the Public as a Share of GDP

No action

GKBG

Long-term 

on-budget balance

Eliminate non-Social

Security surpluses*

*Data end when debt reaches 150 percent of GDP.
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Gregg-Kerrey-Breaux-Grassley

0

10

20

30

40

1998 2030 2050 2074

Social Security Health Net interest All other spending*

Figure 11: Composition of Spending as a

Share of GDP in 1998 and Under

No Action and Gregg-Kerrey-Breaux-Grassley

Revenue

*All other spending includes offsetting interest receipts in 2030 under no action and in 2030, 2050, and 2074 under Gregg-KerreyBreaux-Grassley.

Note: Since a payroll tax carve-out reduces revenue, revenue under Gregg-Kerrey-Breaux-Grassley is net of the carve-out amount.

No action

0

10

20

30

40

1998 2030 2050 2074

Percent of GDP

Revenue
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35

 1998 share

Figure 12: Social Security Spending as a Share of Total

Federal Revenue in 1998 and

Under No Action and Gregg-Kerrey-Breaux-Grassley

Note: Since a payroll tax carve-out reduces revenue, revenue under Gregg-Kerrey-Breaux-Grassley is net of the carve-out amount.

32.4 33.1

39.0

20.8

25.7

21.1 19.7

0

10

20

30

40

1998 2030 2050 2074

Percent of total federal revenue

No action Gregg-Kerrey-Breaux-Grassley
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Gregg-Kerrey-Breaux-Grassley, S. 1383

Financing Sustainable Solvency

• National saving would increase primarily due to the improved fiscal position of the

government resulting from the proposed benefit reductions. The carve-out and KidSave

accounts would increase private saving and decrease government saving with no net

effect on national saving. Saving subsidy for low-income workers could result in some

increase in national saving.1

• Restores 75-year actuarial balance and produces trust fund ratio that at the end of the 75-

year projection period is rising by about 20 percentage points per year.

• Finances individual accounts from payroll taxes. Government matching of voluntary

contributions by low and middle income workers and KidSave accounts funded from

general revenues. General revenue transfers in amounts reflecting COLA reductions are

used to help finance Social Security benefits. Redirects all revenue from taxation of

Social Security benefits to OASDI trust funds.

• Does not create contingent liabilities.

• Contains provision requiring SSA trustees to recommend statutory changes to the

program in the event of unforeseen deterioration in Social Security solvency.

1Analysis limited to first order effects on saving. Effects on saving behavior in response to specific

reform provisions are not considered given the lack of expert consensus.
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Gregg-Kerrey-Breaux-Grassley, S. 1383

Balancing Adequacy and Equity

• Reduces current-law benefits by reducing the COLA, reducing “bend” points,

increasing the NRA, and increasing the benefit computation period. There is a

further offset based on government contributions to the individual account.

Current and near-retirees are excluded from the reduction in the COLA.

• Dependent and survivor benefits could be affected by the changes to the NRA,

the bend points, the COLA, and the benefit computation period.

• Disabled worker benefits could be affected by the changes to the bend points

and the COLA.

• All workers under the age of 62 are covered by the proposal.

• Formula changes increase the progressivity of the OASDI benefit structure;

however, overall progressivity of the system becomes unclear given other

offsetting changes to the benefit structure. Individual account structure includes

a government match that decreases with income.

• There is potential for higher returns on investments; the risk is borne by the

individual.

• Workers have some investment choice, subject to certain limitations.

• The move to advanced funding of Social Security may improve intergenerational

equity.
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Gregg-Kerrey-Breaux-Grassley, S. 1383

Implementing and Administering Reforms

• Funding for implementation is not explicitly discussed. The bill provides no time

frames for implementation.

• There is not enough information to allow an estimate of administrative costs.

• Financing structure of the system may be difficult to explain.

• The changes to the benefit structure may be difficult to explain. An education

program will be necessary.

• The proposal establishes an Individual Savings Fund Board to oversee fund

management.
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Kasich

• Initial benefits are reduced from current law by indexing them to prices

rather than wages as under current law.

• At worker’s option, voluntary individual “carve-out” accounts equal to

between 1 and 3.5 percent of taxable payroll, with higher percentages

available to lower income earners.

• The transition period is financed by a loan from the general fund to the

OASDI Trust Fund to ensure a contingency reserve. SSA actuaries

estimate that if all workers participate in the individual account option, the

Trust Fund would borrow from 2000 through 2045 and begin repaying in

2060 as the Trust Fund balance begins to grow.

• For workers choosing the account option, an additional benefit reduction is

made at retirement to offset contributions to their accounts.
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Kasich

Financing Sustainable Solvency

The effects of the Kasich proposal depend on assumed participation in the individual account

option. SSA’s actuaries analyzed the proposal assuming no participation (Kasich 0%) and

universal participation (Kasich 100%). As illustrated in the following graphs, compared to

No Action, the Kasich proposal:

• Under Kasich 0%, increases projected unified surpluses over the entire simulation period

that average about 2 percent of GDP. Under Kasich 100%, projected unified surpluses are

smaller and deficits larger through 2034; thereafter, projected unified deficits are significantly

reduced. (Figure 13)

• Under Kasich 0%, permanently eliminates debt held by the public beginning in 2011 and the

long-run financial position of the government is significantly improved. Kasich 100% results

in higher debt held by the public through 2047 and then progressively lower debt levels

compared to No Action. (Figure 14)

• Lowers the cost of Social Security as a share of GDP in 2030 by about 1 percentage point--

about one sixth--under either assumption. Compared to No Action, the proposal cuts the

cost of the program by slightly more than half by 2074. (Figures 15 and 16)

• Lowers Social Security spending as a share of federal revenues in 2030 by about 5

percentage points--a little more than one seventh--under either assumption. In 2074

program spending would consume about half as much of federal revenues as in No Action--

or about the same share of federal revenues as today. (Figure 17)
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Figure 13: Kasich

Unified Deficits/Surpluses as a Share of GDP

*Data end when deficits reach 10 percent of GDP.

-5.0

0.0

5.0

10.0

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

No action*

Long-term on-budget

balance

Eliminate non-Social

 Security surpluses *

Kasich 

0% participation

Kasich

100% participation

Deficit Surplus
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42

Figure 14: Kasich

Debt Held by the Public as a Share of GDP

-50

0

50

100

150

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

No action

Long-term

on-budget balance

Kasich 

0% participation

Kasich

100% participation

Eliminate non-Social

 Security surpluses *

*Data end when debt reaches 150 percent of GDP.
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43

With no participation in individual accounts

0

10

20

30

40

1998 2030 2050 2074

Social Security Health Net interest All other spending*

No action

0

10

20

30

40

1998 2030 2050 2074

Percent of GDP

Figure 15: Composition of Spending as a

Share of GDP Under No Action and

Kasich with No Individual Account Participation

Revenue

*All other spending includes offsetting interest receipts in 2030 under no action and in 2030, 2050, and 2074

under Kasich 0%.

Revenue
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44

No action

0

10

20

30

40

1998 2030 2050 2074

Percent of GDP

Social Security Health Net interest All other spending*

Figure 16: Composition of Spending as a Share of GDP

Under No Action and Kasich With

100 Percent Participation in Individual Accounts

Revenue

*All other spending includes offsetting interest receipts in 2030 under no action and in 2030 under Kasich 100%.

Note: Since a payroll tax carve-out reduces revenue, revenue under Kasich 100% is net of the carve-out amount.

100 percent participation in individual accounts

0

10

20

30

40

1998 2030 2050 2074

Revenue
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32.4 33.1

27.4

22.2

19.4

39.0

20.1

23.3

27.7

20.8

0

10

20

30

40

1998 2030 2050 2074

Percent of total federal revenue

No action

Social Security spending with 0% participation in individual accounts

Social Security spending with 100% participation in individual accounts

Figure 17: Social Security Spending as a

 Share of Total Federal Revenue in 1998 and

Under No Action and Kasich Reform Proposal

Note: Since a payroll tax carve-out reduces revenue, revenue under Kasich 100% is net of the carve-out amount.

1998 share
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Kasich

Financing Sustainable Solvency

• National saving would increase primarily due to the improved fiscal position of

the government resulting from the proposed benefit reductions. The carve-out

would increase private saving and decrease government saving with no net

effect on national saving.1

• Restores 75-year actuarial balance under either assumption. The Kasich 0%

produces a trust fund ratio at the end of the 75-year projection period that is

rising by about 20 percentage points per year. Under the Kasich 100%

assumption, the trust fund ratio stays at about 100 percent after 2060.

• Finances individual accounts from payroll taxes. General revenues are loaned to

the trust fund to make up for the payroll tax revenue redirected to individual

accounts. Repayment of loan begins in 2060 and extends beyond the 75-year

period.

• Does not appear to create new contingent liabilities.

• Does not appear to contain "safety valves" to control future program growth.

1Analysis limited to first order effects on saving. Effects on saving behavior in response to specific

reform provisions are not considered given the lack of expert consensus.
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47

Kasich

Balancing Adequacy and Equity

• Reduces current-law benefits by reducing the rate of growth in the OASDI benefit

level. A further reduction of OASDI benefits is proposed for workers who opt for an

individual account. Near-retirees are not affected by the changes unless they

choose an individual account.

• The reduction in the rate of growth of OASDI benefit levels would affect disabled,

dependent, and survivor benefits, although reductions for disabled workers would

be smaller.

• All workers born in 1946 or later are covered by the proposal.

• The progressivity of the OASDI benefit structure should remain unchanged. The

proposal allows for individual contributions of between 1% and 3.5% depending on

income level.

• There is potential for higher returns on investments; the risk is borne by the

individual.

• Workers have some investment choice, subject to certain limitations.

• The move to advanced funding of Social Security may improve intergenerational

equity.
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Kasich

Implementing and Administering Reforms

• Funding for implementation is not explicitly discussed. The proposal provides

no time frames for implementation.

• There is not enough information to allow for an estimate of administrative costs.

• Financing structure of the system through a general fund loan may be difficult to

explain.

• Changes to the benefit structure may be difficult to explain. An education

program will be necessary.

• The proposal does not address the issue of preventing politically motivated

investing.
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President’s Social Security Transfer Proposal and

USA Proposal

Universal Savings Accounts (USAs) considered separate from Social Security.1

Social SecurityTransfer Proposal:2

• No change in current-law benefit.

• Additional financing from general revenues. General fund transfers to OASDI

begin in 2011 and continue through 2044. These transfers would make some

currently implicit future Social Security funding obligations explicit.

USA Proposal:

• Individual accounts proposed, with workers receiving a flat annual general tax

credit of a maximum of $300 annually and a 50-100% match on voluntary

contributions. Both the credit and the matching rate would be reduced or

eliminated for higher income earners. According to administration statements,

total voluntary contributions could not exceed $1,000 annually, including

government match.1

• Finances USAs and government match of voluntary contributions from general

revenues by means of income tax credits.1

1

Information in this sentence is based on administration statements made on April 14, 1999. 2

The Strengthen Social Security and Medicare Act of 1999, transmitted to the Congress on October 26, 1999.
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President's Social Security Transfer Proposal and

USA Proposal

Financing Sustainable Solvency

As illustrated in the following graphs, compared to No Action, the

President’s Social Security transfer proposal would:

• Have no impact on projected unified surpluses or deficits. (Figure 18)

• Have no impact on debt held by the public. (Figure 19)

• Have no effect on Social Security spending as a share of GDP or

federal revenues. (Figures 20 and 21)

In general, compared to No Action, the President’s USA proposal would:

• Reduce projected unified surpluses and increase projected unified

deficits.

• Increase debt held by the public.
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Figure 18: President’s Social Security Transfer Proposal

(Excluding USAs)

Unified Deficits/Surpluses as a Share of GDP

*Data end when deficits reach 10 percent of GDP.

Note: As noted in the text, the President’s Social Security transfer proposal follows the no action path. Analysis is

limited to the effects of the President’s proposal for general revenue transfers to the OASDI trust funds. Sufficient

data were unavailable to incorporate effects of the proposed USAs.

-5

0

5

10

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

No action*

Long-term

on-budget balance

Eliminate non-Social

 Security surpluses * President’s Social

Security transfer

proposal*

Deficit Surplus
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Figure 19: President’s Social Security

Transfer Proposal (Excluding USAs)

Debt Held by the Public as a Share of GDP

-50

0

50

100

150

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

Percent of GDP

No action

Long-term

on-budget balance

Eliminate non-Social

 Security surpluses *

*Data end when debt reaches 150 percent of GDP.

Note: As noted in the text, the President’s Social Security transfer proposal follows the no action path. Analysis

is limited to the effects of the President’s proposal for general revenue transfers to the OASDI trust funds.

Sufficient data were unavailable to incorporate effects of the proposed USAs.

President’s Social

Security transfer

proposal
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President's Social Security transfer proposal

0

10

20

30

40

1998 2030 2050 2074

Social Security Health Net interest All other spending*

No action

0

10

20

30

40

1998 2030 2050 2074

Percent of GDP

Figure 20: Composition of Spending as a

Share of GDP in 1998 and Under

No Action and the President’s Social Security

Transfer Proposal (Excluding USAs)

Revenue

*All other spending includes offsetting interest receipts in 2030 under no action and the President’s transfer proposal.

Note: Analysis is limited to the effects of the President’s proposal for general revenue transfers to the OASDI trust funds.

Sufficient data were unavailable to incorporate effects of the proposed USAs.

Revenue
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Figure 21: Social Security Spending as a Share of

Total Federal Revenue in 1998 and Under

No Action and the President’s Social Security

Transfer Proposal (Excluding USAs)

32.4 33.1

39.0

20.8

39.0

33.1 32.4

0

10

20

30

40

1998 2030 2050 2074

Percent of total federal revenue

No action President’s Social Security transfer proposal

Note: Analysis is limited to the effects of the President’s proposal for general revenue transfers to the OASDI trust funds.

Sufficient data were unavailable to incorporate effects of the proposed USAs.

1998 share
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President's Social Security Transfer Proposal and

USA Proposal

Financing Sustainable Solvency

Social Security Transfer Proposal:

• Does not address sustainable solvency. Reduces the OASDI trust

funds’ actuarial deficit by 0.91 percent of taxable payroll but does not

restore 75-year actuarial balance. According to the SSA actuaries, the

proposal extends the solvency of the trust funds until 2050.

• Uses general revenue to pay a portion of current-law benefits and

extend trust fund solvency.

• Does not create contingent liabilities.

• Contains no new "safety valves" to control future program growth.
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President's Social Security Transfer Proposal and

USA Proposal

Financing Sustainable Solvency

USA Proposal:

• General tax credit for Universal Saving Accounts (USAs) would

increase private saving and reduce government saving with no net

effect on national saving. The incentive provided by the government

match of voluntary contributions to USAs could result in some increase

in national saving.1

• Finances USAs and government match of voluntary contributions from

general revenues by means of income tax credits.

1Analysis limited to first order effects on saving. Effects on saving behavior in response to specific

reform provisions are not considered given the lack of expert consensus.
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President's Social Security Transfer Proposal and

USA Proposal

Balancing Adequacy and Equity

Social Security Transfer Proposal:

• Maintains current-law benefits for current and future retirees, including lowincome workers and others most reliant on Social Security.

• There are no changes to disabled, dependent, or survivor benefits.

• No change from the current OASDI structure in the way workers are

covered.

• No change in the progressivity of the OASDI benefit structure.

• Does not address intergenerational equity issues.
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President's Social Security Transfer Proposal and

USA Proposal

Balancing Adequacy and Equity

USA Proposal:

• A USA is established for each worker with family earnings of at least

$5,000 annually.1

• Progressivity is built into the USA structure through a government match.

Low-income workers get a one-to-one match to their contributions, while

higher income workers receive a lower percentage match or none at all.1

• Individuals would earn market returns but would bear the risk.

• Workers have some investment choice, subject to certain limitations.

• To the degree that USAs increase individual retirement savings,

intergenerational equity may improve.

1Information in this sentence is based on administration statements made on April 14, 1999.
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President's Social Security Transfer Proposal and

USA Proposal

Implementing and Administering Reforms

Social Security Transfer Proposal:

• No new implementation costs for the current Social Security program.

• Current Social Security program has administrative costs of less than

1% of benefit outlays.

• Financing structure of the transfer proposal may be difficult to explain.

• Benefits structure of Social Security does not change.
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President's Social Security Transfer Proposal and

USA Proposal

Implementing and Administering Reforms

USA Proposal:

• The USA proposal does not discuss funds for implementation.

• There is not enough information to allow an estimate of USA

administrative costs.

• An education program will be necessary to explain the contribution and

matching funds structure of the USA.

• Not enough information to assess whether the USA proposal would

address the issue of preventing politically motivated investing.
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Evaluating Social Security Reform Proposals

Conclusion

• A proposal’s ability to achieve and sustain solvency is sensitive to economic

and budgetary assumptions.

• All proposals present trade-offs between unified budget results and benefit

levels.

• Proposals that guarantee benefits place the risk of financing those benefits on

the government. Proposals that provide more choice and control to individuals

may place individual benefits at greater financial risk.

• In any reform proposal, attention must be paid to the impact on poverty among

the elderly.

• None of the proposals fully address implementation and administrative issues.
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Attachment I: No Action Model Assumptions

Model Inputs Assumptions

Unified surplus/deficit CBO through 2008; GAO simulations thereafter

Social Security spending (OASDI) 1999 Social Security Trustees’ Intermediate

projections

Medicare spending (HI and SMI) 1999 Medicare Trustees’ Intermediate projections

Medicaid spending CBO’s projections

Other mandatory spending CBO’s assumed levels through 2008; thereafter,

increases at the rate of economic growth

(i.e., remains constant as a share of GDP)

Discretionary spending CBO through 2008; thereafter, increases at the rate

of economic growth

Receipts CBO’s assumed levels through 2008; in subsequent

years, receipts held constant at 21.1% of GDP

(ratio) in 2008

Saving rate: gross saving of the private sector and

state and local government sector

17.4%

Share of gross national saving that flows abroad 33.3%

Labor: growth in hours worked 1999 Social Security Trustees’ Intermediate

projections

Total factor productivity growth 1.1%

Inflation (GDP price index) CBO through 2009; 1.9% thereafter (CBO’s

projection in 2009)

Interest rate (average on the national debt) Average rate implied by CBO’s interest payment

projections through 2008; 5.6% thereafter (CBO’s

implied rate in 2008)

Note 1: These assumptions apply to our base simulation, no action. For alternative fiscal policy simulations, certain assumptions are varied, which are

noted in the discussion of the alternative paths.

Note 2: In our work, all CBO budget projections were converted from a fiscal year to a calendar year basis. The last year of CBO’s projection period is fiscal

year 2009, permitting the calculations of calendar year values through 2008.

(935328/207079/935339) Letr
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