Experiment Yields Nonpartisan Social Security Reform Plan: Compromise proposal cuts benefits, raises retirement age, increases payroll tax cap, and introduces mandatory personal retirement accounts

Contact: Doug Gavel
Phone: 617-495-1115
Date: December 14, 2005

Cambridge, MA — A nonpartisan Social Security System reform plan, drafted by three Social Security experts from across the political spectrum, has been released today. The proposal demonstrates that, despite the contentiousness of the recent Social Security debate, compromise is possible. The plan has been reviewed by the Office of the Chief Actuary at the Social Security Administration, which concluded that it would “easily satisfy the criteria for attaining sustainable solvency.” (See SSA review: http://www.ssa.gov/OACT/solvency/).
The reform package contains four primary elements: a gradual reduction in future benefits; an increase in the payroll tax cap; an increase in the retirement age; and the establishment of personal retirement accounts. The plan puts great emphasis on fiscal responsibility — borrowing less from general revenues than any other plan that has been scored by the Social Security actuaries in recent years.
The three authors of the report are: Jeffrey Liebman, professor of public policy, Harvard University’s Kennedy School of Government and special assistant to President Clinton for economic policy (1998-99); Maya MacGuineas (MPP '97), director, Fiscal Policy Program, New America Foundation and Social Security advisor to Senator John McCain’s 2000 presidential campaign; and Andrew Samwick, professor of economics and director, Nelson A. Rockefeller Center for Public Policy, Dartmouth College, and chief economist, staff of President Bush’s Council of Economics Advisers (2003-04).
“Despite the fact that we all came into to this discussion with different priorities, the compromises in the plan demonstrate that there are a range of policy options that can gain support from across the political spectrum,” said Samwick. “The differences that do exist can be bridged through thoughtful and serious negotiations by well-intentioned policy makers.”
MacGuineas said, “We hope to stimulate serious and substantive discussion in Washington about the particulars of how to fix Social Security and how to achieve bipartisan compromise. While Social Security reform hit a political roadblock this year, the issue is not going away and the question of how to rebalance the nation’s retirement system must be addressed.”
More specifics on the Liebman-MacGuineas-Samwick plan include:
* The establishment of personal retirement accounts (PRA) would be funded by a combination of diverting 1.5 percent of the current payroll tax and requiring workers to contribute an additional 1.5 percent of payroll into their PRAs.
* The plan would raise the cap on earnings subject to the Social Security payroll tax so that 90 percent of earnings were taxed.
* Benefits would be gradually reduced to keep the costs of the traditional system to what can be afforded by the 12.4 percent payroll tax. The cuts are structured such that cuts are larger for high earners than for low earners.
* The proposal would gradually increase the normal retirement age (currently scheduled to reach 67 in 2017) to 68 and the earliest age at which retirees could collect Social Security benefits from its current 62 to 65. People would be able to tap into their PRA assets beginning at age 62.
* In order to minimize risks and administrative costs, accounts would be tightly regulated and full annuitization of account balances would be required.
The plan includes various other components designed to maintain adequate benefit levels for low-income households, widows and widowers, and the disabled.
“The advantages of this plan are straightforward,” said Liebman. “It achieves sustainable solvency, maintains retirement incomes levels, and is the most fiscally responsible plan released in recent years.”
The Liebman-MacGuineas-Samwick plan is available on line at: http://www.nonpartisanssplan.com/pages/1/index.htm

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