Potential Paths of Social Security Reform

Martin Feldstein and Andrew Samwick

No 8592, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents several alternative Social Security reform options in which the projected level of benefits for every future cohort of retirees is as high or higher than the benefits projected in current law. These future benefits can be achieved without any increase in the payroll tax or in other tax rates. Under each option, the Social Security Trust Fund is solvent and ends with a sustainable positive and growing balance. Each option combines the current pay-as-you-go system of defined benefits with an investment-based personal retirement account (PRA). Assets in the PRA can be bequeathed if the individual dies before normal retirement age. We also consider the option in which an individual can take all or part of his accumulated PRA balanced as a lump sum at normal retirement age. The basic plan that we present in greatest detail combines a transfer to the personal retirement account of a portion of the individual's payroll tax equal to 1.5 percent of earnings if the individual agrees to deposit an equal out-of-pocket amount. The additional national saving that results from this option leads to increased business investment and therefore to increased general tax revenue; a portion of that revenue, equal to 1 percent of the PRA balances , is transferred to the Social Security Trust Fund. The other options that we present include plans with no out-of-pocket contributions by individuals and others with no transfer of general revenue to the Trust Fund. We also discuss the implications of different rates of return on the PRA balances and, more generally, the issue of risk, including a market-based method of guaranteeing the real principal of all PRA deposits.

JEL-codes: H55 (search for similar items in EconPapers)
Date: 2001-11
New Economics Papers: this item is included in nep-pbe
Note: AG PE
References: Add references at CitEc
Citations: View citations in EconPapers (20)

Published as Potential Paths of Social Security Reform , Martin Feldstein, Andrew Samwick. in Tax Policy and the Economy, Volume 16 , Poterba. 2002

Downloads: (external link)
http://www.nber.org/papers/w8592.pdf (application/pdf)

Related works:
Chapter: Potential Paths of Social Security Reform (2002)
Working Paper: Potential Paths of Social Security Reform (2001)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:8592

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w8592

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().