Jump to content



Recommended Posts


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@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 Bush’s 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 today’s 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 year’s delay before matching their employee’s 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.

For the complete study: Pre-Release Draft: Social Security Reform without Illusion: The Five Percent Solution  The Five Percent Solution (PDF)

The NCPA is an internationally known nonprofit, nonpartisan research institute with offices in Dallas and Washington, D. C. that advocates private solutions to public policy problems. We depend on the contributions of individuals, corporations and foundations that share our mission. The NCPA accepts no government grants.


Link to comment
Share on other sites


This topic is now archived and is closed to further replies.

  • Create New...