Associated Press
WASHINGTON — President Bush’s Social Security commission recommended three plans Tuesday to let younger workers invest some of their payroll taxes in the stock market. All would come with a cost.
The proposals would require $2 trillion to $3 trillion in new government spending over the next 75 years.
And in some cases, workers retiring in 30 to 50 years would face cuts in annual benefits from 1 percent to nearly 33 percent.
"We’re going to face a lot of criticism I’m sure for cutting benefits," Commissioner John Cogan said, adding that current retirees or people nearing retirement would not be affected.
The commission tried to soften what could be a political time bomb in next year’s elections by sending the president three separate proposals for private accounts rather than a single solution. It suggested policy-makers discuss an overhaul for at least a year before taking action.
The report comes as policy-makers focus on a war on terrorism and face disappearing federal budget surpluses.
Bush formed the commission last spring to recommend a plan to restore fiscal stability to the retirement system by creating personal investment accounts. Because of the retiring baby-boom generation, by 2016 Social Security is expected to start paying out more in benefits than it takes in from payroll taxes.
The commission acknowledged its proposals would not shield the system from the financial strains it faces as fewer workers are paying into the system.
But they "all move the ball down the field," said Richard Parsons, commission co-chairman.
The 141-page report doesn’t spell out how much benefits would be cut, and argues that future retirees actually will get much less in benefits than they are being promised because the system is going broke.
"The program is financially unsustainable in its current form," said Commissioner Gerald Parsky. "Doing nothing is not a real option."
The commission wants to let younger workers invest 2 percent to 4 percent of their taxable wages in a personal account. In exchange, that amount — plus interest — would be deducted from a person’s traditional Social Security benefits. Interest earned on the stock market account should make up shortfalls, the report said.
Because Social Security is a pay-as-you-go system and today’s workers are funding today’s retirees, the government would have to help prop up the system for decades to make up for the money going into personal accounts.
Also, in two of its three options, the commission proposes changing the formula used to calculate future benefits — resulting in smaller benefits than now being promised.
If that was done, according to report figures, a low-wage worker retiring in 2032 could expect $84 to $384 less a year in guaranteed benefits than what is being promised today. A high-wage worker’s annual guaranteed benefits could be cut $3,300 to $3,876. But the commission is counting on returns from the personal accounts to cover the cuts.
Copyright ©2001 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
Talk to us
> Give us your news tips.
> Send us a letter to the editor.
> More Herald contact information.