An assessment of the proposals of the President's Commission to Strengthen Social Security
By: Peter A. Diamond, Peter R. Orszag
Contributors: Orszag, Peter R.; Massachusetts Institute of Technology. Dept. of Economics
Series: Working paper series / Massachusetts Institute of Technology, Dept. of Economics -- working paper 02-28; Working paper (Massachusetts Institute of Technology. Dept. of Economics) -- no. 02-28.
Publisher: National Bureau of Economic Research
Published: 2002
Place of publication: Cambridge, MA
Language: eng
Number of pages: 75
Description: Two of the Social Security Commission's plans restore actuarial balance without their individual accounts, primarily or entirely through benefit reductions. Both have voluntary carve-out individual accounts, with one requiring (subsidized) add-on contributions for opening accounts. "Liability accounts" track diverted payroll taxes (with interest) and are repaid by reducing traditional benefits. The diverted payroll worsens Trust Fund finances because the liability accounts carry sub-market interest rates and because of cash-flow problems. If all eligible workers (two-thirds) open accounts, general revenue transfers over 75 years are 1.2 to 1.5 (0.8 to 1.2) percent of payroll. Preserving disability benefits at their scheduled levels raises transfers to 1.5 to 1.7 (1.1 to 1.3) percent. Nevertheless, expected combined benefits are significantly reduced (and risk-adjusted benefits more so). In 75 years, account assets are 53 to 66 (35 to 44) percent of GDP, and liability accounts exceed 20 (15) percent of GDP. Keywords: Social security, individual accounts, actuarial balance. JEL Classifications: H55, E62.
Notes: "July 2002."

Includes bibliographical references (p. 49-51).

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