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social security

social security - Perspectives from the President's...

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Perspectives from the President’s Commission on Social Security Reform John F Cogan and Olivia S Mitchell Background Projected problem: in 15 years the social security trust fund will be insolvent and will be legally unable to pay scheduled benefits. The only way to keep the system financed is to have a 50% payroll increase Problems for workers: o The system’s benefits represent very low returns on payroll tax contributions. o A large proportion of Americans (poor, Hispanic/minority) lack private savings o System induces workers to save less and retire early What exactly is the goal of the President’s Commission on SS Reform? o Provide the President with recommendations to modernize the Social Security system o Restore its fiscal soundness o Develop a workable system of personal retirement accounts as part of a newly structured program Perspectives on Funding and Personal Accounts Social Security must move away from a “pay as you go” system to a prefunded program o How can this be accomplished? Invest surplus SS funds directly into capital markets Rejected from senate on multiple occasions A program of gov’t investment would also mean that the gov’t rather than the workers and retirees would own and dispose of the accumulated retirement assets Personal ownership of assets gives workers incentive to save more Use surplus funds to pay down publicly held debt
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Permit individuals to carry out the prefunding in the form of personal accounts Initial way social security worked o Under FDR initial plan was to amass substantial surpluses during the program’s early years which were to be used to reduce federal debt held by public o 1940’s wartime economy produced large SS surpluses o each time there was a surplus, pressure mounted to spend it The Meaning of the trust fund
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