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Fixing Social Security: The Clinton Plan and its Alternatives

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Abstract:

After a lifetime of participating in the workforce, workers should be able to count on a secure retirement. Social Security is the most effective way working people have of guaranteeing themselves a reliable income in their old age. Two-thirds of retired workers receive 50% or more of their income from the program.

Given the importance of Social Security, it is easy to understand why people are concerned for its stability. The Social Security Trust Fund, which receives the payroll taxes that are paid out as benefits, is solvent. In fact, it is better than solvent -- it actually brings in more than enough money to pay current benefits. But to ensure future solvency, each year the Social Security Trustees are required by law to assess the program's finances for the next 75 years. Their recently released 1999 report provides additional evidence that, despite the oft-heard alarmist rhetoric, there is no crisis in the Social Security program.

The trustees project that the program, as it currently exists, will be able to pay full benefits until 2034, which is two years longer than their 1998 estimate. The fund is now projected to have revenues sufficient to pay 73% of benefits in 2035 and about 67% of benefits in 2075 (if nothing were to change between now and then). In the latest report, the trustees conclude that "the long-term financing problem facing Social Security is significant but could be solved by small gradual changes if those changes are enacted soon" (Social Security and Medicare Board of Trustees 1999, emphasis added).

The president has proposed a plan to ensure that the Trust Fund can pay Social Security benefits through 2055, primarily by using government surpluses to increase the program's assets. Congressional Republicans tend to favor a more radical strategy of privatization that would transform Social Security into individual private investment accounts.

In this briefing paper we explain the Social Security problem and its simplest, most sensible solution, a solution that requires only small, gradual modifications to the system that are being overlooked by both the president's plan and the Republican privatization alternatives.

As shall be seen in this paper, not all proposals are created equal. The president's plan, while flawed, could save the Social Security program for future retirees; the privatization proposals are almost sure to destroy it.