Workable Plan for Social Security Reform

Courtesy of Free Republic and ACUF:

The Trustees would do well to consider a masterful proposal incorporated in a bill co-sponsored by Sen. John Sununu and Rep. Paul Ryan that meets all of the general ideas advanced by President Bush:

(1) Out of the 12.4% deducted for the payroll tax, workers could choose (not be forced) to shift to personally owned individual retirement accounts: 10% of the tax on the first $10,000 in wages would be invested each year, plus 5% of the tax on any income above that amount. These new accounts would be owned by the worker rather than by the government.
(2) The average individual investment would be 6.4 %, roughly the amount of the present employee contribution, invested in approved private mutual fund-like instruments modeled on the Federal Employee Thrift Retirement System. For new workers, the contributions would be large enough that all retirement benefits would be paid by the accounts and none would come from the government accounts, eliminating this government obligation. Those who were already working but choose to add private accounts would receive part of their benefits from the present system and part from the accounts, with all workers guaranteed at least as much as existing Social Security benefits would provide.
(3) For those in the present system who choose not to participate, the benefits would remain the same, as would survivors and disability benefits for all, supported by the other 6% of the payroll tax for the later.
(4) To pay for transition costs (a) the growth of federal government spending would be capped at 1% per year for 8 years and then continued at that rate until all debt was paid, (b) revenue to the federal government would be increased as a result of the higher investment return from the private accounts (the present value of which is estimated by Martin Feldstein to be $10-$20 trillion), and (c) the short term Social Security surpluses until 2018 would pay all additional costs plus funds from selling existing Social Security bonds to the Treasury (as the law envisions).
(5) Once the transition costs have been paid entirely, the remaining funds generated by the reforms would automatically trigger an actuarial reduction of the payroll tax (which the Chief Actuary estimates would eventually result in a payroll tax of only 4%, equally shared by employee and employer), primarily to support survivors and disabled benefits, since most workers would have shifted to private accounts by then.

Under this plan, Social Security would achieve permanent and growing surpluses by 2030, instead of going into the red starting in 2018.

Social Security Reform is a tricky thing, and this is the first detailed proposal I have seen to address it. There are a lot of dependencies in this plan, and it is likely that, even if it was put into motion, it would be sidetracked or altered by subsequent Congresses or Administations.