December 20, 2014

CONCORD COALITION RELEASES REPORT OUTLINING GORE & BUSH SOCIAL SECURITY REFORM PROPOSALS

WASHINGTON -- The Concord Coalition released a report today that reviews the major issues raised by the Social Security reform proposals of Vice President Al Gore and Texas Governor George W. Bush.  Now available on-line, the report examines the fiscal and demographic challenges facing Social Security, offers a framework for evaluating reform proposals, and provides an initial assessment of the two proposals.  The report's purpose is to provide the public and the media with a source of unbiased analysis of the difficult, often confusing, issues involved in Social Security reform. The executive summary follows:

The Gore Proposal

The Bush Proposal

Best point:  Places strong emphasis on debt reduction. Best point:  Places strong emphasis on prefunding future benefits.
Weaknesses: Weaknesses:
  • Fails to propose any benefit reductions or revenue increases to address Social Security's long-term cash deficits, which are projected to begin in 2015 and continue forever.
  • Fails to propose any benefit reductions or revenue increases to address Social Security's long-term cash deficits, which are projected to begin in 2015 and continue forever.
  • Aims at the fiscally and economically irrelevant goal of trust fund solvency.
  • Has no clear overall goal.
  • Relies too heavily on projected budget surpluses.
  • Relies too heavily on projected investment returns from new voluntary retirement accounts.
  • Adds a new entitlement (“Retirement Savings Plus” accounts) without reducing the unfunded obligations of the current system.
  • Does not confront the transition cost that arises from funding personally owned accounts with a portion of the current payroll tax.

    Like most Americans, The Concord Coalition is delighted with the federal government's improving fiscal condition. However, today's prosperity has not turned back the coming age wave. The number of retired Social Security beneficiaries is still due to grow five times faster than the number of tax paying workers over the next half century. Nor has prosperity erased the projected growth in benefit costs. In fact over the past four years, the officially projected cost of Social Security as a share of payroll beyond the year 2040 has actually increased. And in November 1999, the Technical Panel of the Social Security Advisory Board warned that the official projections might greatly underestimate future longevity and hence future costs.

    It is thus a welcome development that Social Security has moved to the top of the campaign 2000 agenda. But while it is certain that Social Security will be a major campaign issue, it remains uncertain whether the candidates will face up to the hard choices and trade-offs that must be made to put the program on a fiscally sustainable and generationally equitable path. The early signs are not encouraging.

    Vice President Al Gore has offered a proposal that would credit trillions of dollars of additional IOUs to the Social Security trust funds, thus extending the program's technical solvency but doing nothing to lower its long-term cost burden. In fact, his proposal would increase the cost of the current system by expanding benefits without offering any corresponding reductions. Moreover, it would do nothing to alter the declining rate of return on workers' payroll contributions. 

    Texas Governor George W. Bush has proposed that workers be allowed to devote an unspecified portion of their payroll taxes to personally owned retirement accounts, which presumably would earn higher returns than taxes paid into the current system. But personally owned accounts come with a transition cost because the same tax dollars cannot be used to fund both new accounts and benefits promised under current law. So far, Governor Bush has not recommended any method of paying this transition cost, and thus has not explained how his proposal would be fiscally sustainable.

    There are, of course, positive elements in each candidate's approach. Vice President Gore's emphasis on balanced budgets and debt reduction is fiscally responsible. Using the Social Security surplus to reduce the publicly held debt, as the Vice President proposes, would not directly reduce the future cost burden of Social Security, but it may make that burden easier to bear by increasing the size of the economy and creating resources to cover at least a portion of the projected cash deficits which begin in 2015.

    Governor Bush's emphasis on allowing workers to begin prefunding a portion of their own retirement through personally owned accounts could, if properly designed and implemented, provide a way to maintain adequate benefits, improve the return on workers' contributions, and lower the cost of the system for future taxpayers.

    But neither debt reduction nor personally owned accounts alone is a credible solution to Social Security's long-term challenges. In truth, there are only two roads to genuine reform, and a workable plan must pursue both. First, and indispensably, reform must reduce Social Security's long-term burden by reducing its long-term cost. At the same time, it should try to make the remaining burden more bearable by increasing national savings, and hence the size of tomorrow's economic pie.

    At this point, the Gore and Bush plans fall short on both counts. Neither plan even attempts to rein in the long–term cost of the program. Moreover, it is questionable whether either would result in any net new savings since neither provides new funding by raising new revenues or reducing promised benefits.

    What we are left with is a choice between two free lunch proposals. That kind of political debate, which rules out changes in current benefit promises or tax rates, is perhaps worse than no debate at all because it locks the new President into an indefensible position. If the end result of the Social Security debate in campaign 2000 is a national embrace of this free lunch temptation, it will be a great disservice to tomorrow's workers and beneficiaries, many of who are already paying into the system.

    Free lunch proposals and over-heated rhetoric during the campaign will make it difficult to engage in substantive bipartisan reform after the election. It is crucial that the hard choices be acknowledged and addressed in the 2000 campaign. Consider that if the winner of this year's election serves two terms, the first of the Baby Boomers will qualify for Social Security benefits before he leaves office. The window of opportunity for phased-in modest changes is beginning to slide shut.

    The Concord Coalition is a nonpartisan, grass roots organization dedicated to balanced federal budgets and generationally responsible fiscal policy.  Former U.S. Senators Warren Rudman (R-N.H.) and Sam Nunn (D-Ga.) serve as Concord's co-chairs and former Secretary of Commerce Peter Peterson serves as president. The organization does not endorse, support or oppose candidates for public office or political parties.