Social Security Reform
Old Age, Survivors Insurance - OASI
This webpage proposes an idea for Social Security reform and contrasts that idea to two other ideas recently proposed - the Debt Commission and the Paul Ryan Roadmap.
New Idea – FederalSafetyNet (“FSN”) Reform Plan
OASI would be left intact except for one aspect of the program – once a minimum retirement level has been achieved by a worker their payroll taxes would be lowered by two-thirds. The worker would then be free to invest the savings in the private sector as he/she sees fit.
· No change would be made to current retirees or the pension they receive.
· All working Americans would be protected with a minimum retirement level which is the aim of the current OASI program.
· The protection of low-income workers would be maintained, including the income redistribution portion of the program. This is accomplished by leaving one-third of payroll taxes in place for the life of all workers.
· The reform puts OASI on a sustainable footing and at the same time gives more financial freedom to workers.
For more information click here.
· No change would be made to current retirees or the pension they receive.
· All working Americans would be protected with a minimum retirement level which is the aim of the current OASI program.
· The protection of low-income workers would be maintained, including the income redistribution portion of the program. This is accomplished by leaving one-third of payroll taxes in place for the life of all workers.
· The reform puts OASI on a sustainable footing and at the same time gives more financial freedom to workers.
For more information click here.
Trust Fund Repaid
The general fund of the federal government has borrowed over $2.3 trillion from the Retirement Trust fund. A critical first step in making OASI sustainable is getting the general budget healthy and providing for the repayment of the Trust fund. The foundation of all three reform plans is the assumption that this money is repaid over time. Continued high spending leading to large federal deficits challenge this premise.
Paul Ryan Roadmap
Representative Paul Ryan, Ranking Member of the Committee on the Budget, U.S. House of Representatives, published a Roadmap January 2010, which included OASI reform. The key aspect of the reform is the creation of personal accounts whereby workers age 55 and under would be able, after a phase in period, to invest up to 5.1% of their 12.4% payroll taxes. These accounts would be managed by the government, would invest in private sector stocks and bonds, would have a guarantee of performance and would give workers a property right to the investment.
The provisions of the current OASI program pertaining to Americans age 55 and older would be unchanged. There would also be no change to payroll tax rates or the protection of low-income workers including the income redistribution portion of the program. The reform would put OASI back on a sustainable financial path. The reform plan bifurcates the OASI program into two investments – the regular account and personal accounts. The plan uses the increased investment earning in the stock and bond market within the personal accounts to add overall value to the program. This increased value is used to substantiate the protection of low-income workers and to put OASI back on a sustainable financial footing. The regular account portion generally provides the insurance and minimum retirement aspect of the plan and the personal accounts help to promote a higher pension amount for workers and establish a property right in the investment. For more information click here. |
Debt Commission Reform
The Debt Commission was empowered by President Barack Obama as a bipartisan group to research and propose a deficit reduction and entitlement reform plan. In their report dated December 2010, the Commission recommended various policy changes to return OASI to a sustainable financial position. The recommendations are listed below:
1. Gradually change the benefit formula 2. Strengthen low-income pensions 3. Raise the retirement age 4. Raise the payroll tax maximum 5. Modify COLA calculations 6. Phase in the coverage of newly hired state and local workers For more information click here. |
Comparison of the Three Reform Plans
All three reform plans world fix the financing of OASI and put the program on a sustainable footing. The Debt Commission reform accomplishes this by leaving the program structure the same and tweaking the parameters of payroll tax, retirement age, formulas and cola’s.
The Roadmap and the FSN reform move a portion of worker payroll taxes to a new type of investment. The Roadmap allows a portion of individual investments to be done in personal accounts. These accounts will invest in private sector stocks and bonds and will therefore have a higher rate of growth than the regular account investment. A large portion of payroll tax receipts is left in the regular accounts to protect low-income workers, maintain the income redistribution portion of the program and to make the overall OASI program financially sustainable.
FSN reform also allows for a portion of the payroll tax to be used for personal investment but does so by reduction of the payroll tax to allow the worker to invest in the private sector instead of within the OASI program. It accomplishes the protection of low-income workers and financial sustainability by leaving one third of the payroll tax behind.
FSN reform shrinks the size of OASI by concentrating on what government can do best – run an insurance/minimum retirement program to protect all Americans. It avoids what government should not do – force Americans to invest in a system to provide for higher than minimum retirement benefits, direct investment in private sector stocks and bonds and guarantee a level of performance on these investments. It is inefficient for the government to do these functions and it creates a conflict of interest when government invests in private sector stocks and bonds. These functions are better left to the American people to establish outside the federal government.
FSN reform lets Individuals decide the size of their retirement investment once the OASI program has been satisfied and every American has a minimum, safe retirement pension. By shrinking the size and function of OASI the program is made stronger for low-income retirees and put back on a sustainable financial footing.
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The Roadmap and the FSN reform move a portion of worker payroll taxes to a new type of investment. The Roadmap allows a portion of individual investments to be done in personal accounts. These accounts will invest in private sector stocks and bonds and will therefore have a higher rate of growth than the regular account investment. A large portion of payroll tax receipts is left in the regular accounts to protect low-income workers, maintain the income redistribution portion of the program and to make the overall OASI program financially sustainable.
FSN reform also allows for a portion of the payroll tax to be used for personal investment but does so by reduction of the payroll tax to allow the worker to invest in the private sector instead of within the OASI program. It accomplishes the protection of low-income workers and financial sustainability by leaving one third of the payroll tax behind.
FSN reform shrinks the size of OASI by concentrating on what government can do best – run an insurance/minimum retirement program to protect all Americans. It avoids what government should not do – force Americans to invest in a system to provide for higher than minimum retirement benefits, direct investment in private sector stocks and bonds and guarantee a level of performance on these investments. It is inefficient for the government to do these functions and it creates a conflict of interest when government invests in private sector stocks and bonds. These functions are better left to the American people to establish outside the federal government.
FSN reform lets Individuals decide the size of their retirement investment once the OASI program has been satisfied and every American has a minimum, safe retirement pension. By shrinking the size and function of OASI the program is made stronger for low-income retirees and put back on a sustainable financial footing.
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