Browse By:


Thursday April 26, 2018 Login |Register


A Project of

sponsored by

Should the Budget Rules Be Changed So That Large-Scale Borrowing to Fund Individual Accounts Is Left Out of the Budget?

Bookmark and Share Report Misuse or Glitches

Abstract:

Recent plans to replace part of Social Security with individual accounts would significantly increase federal borrowing for at least several decades. Over the next 10 years alone, various individual account proposals funded by borrowing would increase deficits and borrowing by between $1 trillion and $5.3 trillion.

Such deficits have historically been acknowledged by supporters of individual accounts. For example, an analysis of Social Security individual accounts issued by the President’s Council of Economic Advisers in 2004 concluded that “Personal retirement accounts widen the deficit by design — they refund payroll tax revenues to workers in the near term while lowering benefit payments from the pay-as-you-go system in later years.”

Now, however, the Bush Administration and some Congressional leaders are considering a dramatic shift in the budget accounting rules that would cloak the impact of individual account plans on the deficit. Under the proposed shift, the borrowing associated with deficit-financed individual accounts would be omitted from the budget and would not show up as an increase in the deficit.

Those who favor this approach note that individual account proposals typically combine the creation of individual accounts today with a reduction of Social Security benefits decades into the future. They seek to obtain immediate budgetary “credit” for these future benefit reductions. But this radical departure from established budget rules would not be fiscally responsible.