The Chief Actuary of Social Security has confirmed these conclusions, demonstrating that neither tax increases nor benefit cuts nor increases in the retirement age are necessary with large personal retirement accounts if a reasonable transition-financing plan is in place. One such plan has been proposed by Rep. Paul Ryan, R-Wis., and Sen. John Sununu, R-NH). Their proposal would allow workers to devote approximately half the payroll tax to personal accounts and finance the transition by four means.
First, they stop the raid on Social Security and rather than continuing to spend Social Security surpluses (expected to equal $1.75 trillion between now and 2018) on other government programs, they would devote all the surpluses to help cover the shortfall in Social Security revenues when workers are allowed to redirect about half the payroll tax away from paying current benefits into personal accounts.
Second, Ryan and Sununu propose mild federal spending-growth restraint for the rest of the federal government that would lower the annual rate of expected federal spending growth about 1 percentage point beneath its currently projected path (from 4.7 percent to 3.7 percent) for eight years.
Third, based on the research of Harvard economist Martin Feldstein, the former head of the President's Council of Economic Advisers, Ryan and Sununu count on higher general revenues resulting as a consequence of higher national saving and faster economic growth produced by the reform. This assumption is perfectly reasonable since, according to Feldstein, "the combination of improved labor-market incentives and the higher real return on saving (from large personal accounts) has a net present value gain of more than $15 trillion, an amount equivalent to 3 percent of each future year's GDP forever." This increase in output compares positively to an infinite-horizon, present-value unfunded Social Security liability of $13 trillion as calculated by Social Security Trustee Thomas Saving.
Fourth, Ryan and Sununu embrace some additional federal borrowing as a rational and reasonable financing arrangement to permit workers to redirect half the payroll tax into personal accounts and pre-fund their own retirement. As FreedomWorks chief economist Lawrence Hunter points out in a recent study for the Institute for Policy Innovation, under the Ryan/Sununu plan, "public debt, including accrued interest, rises by a total of $1.82 trillion (constant 2003 dollars) with large personal accounts, but the reform plan produces enough surpluses after 2028 to pay off all those bonds within the following 15 years, leaving the net impact on debt held by the public at zero over the 40-year time horizon. ... At no time would annual deficits exceed 1.5 percent of GDP, and they would average less than 1 percent most of the time."
It's time Kerry stopped the scare tactics on Social Security. It's time he stopped telling voters what he won't do about Social Security and begins telling them precisely how he intends to modernize it and save it from bankruptcy.