Social Security actuaries report on H.R. 530
The official actuaries of the Social Security program have officially scored Rep. Sam Johnson's H.R. 530, which is based on the Cato Institute's 6.2% Solution. Cato quotes from the report:
According to the official "scoring" by the Social Security Administration of Rep. Sam Johnson's reform legislation, which is based on the Cato Institute's own Social Security plan, the bill "would eliminate Social Security's long-range actuarial deficit" and restore the system to "sustainable solvency." Social Security Administration actuaries predict that over the program's 75-year actuarial window, "the overall effect of the proposal is to transform the projected $3.7 trillion long-range unfunded obligation for the program under current law into an expected positive Trust fund balance of $1.8 trillion at the end of the period."Good news from the bean-counters - note especially the point that the so-called "transition costs" are not new costs, but only existing future obligations brought forward in time. Now let's see those big-government liberals talk about how they believe the actuaries on some other tax-raising plan but not this one.
Additional Highlights From the Social Security Administrations Actuarial Memo Regarding HR 530
* The "transition cost" (in present value) would be approximately $6.5 trillion. This is just over half the unfunded liability of the current system (using an infinite horizon measure). The legislation also compares very favorably to other Social Security reform plans. In terms of giving workers more control and ownership of their retirement funds, Johnson's bill clearly provides the most "bang for the buck."
* On a cash-flow basis, the legislation does require significant short-term transfers of General Revenue. However, by 2046, the system would begin running a surplus, allowing any short-term debt to be repaid. Indeed, by the end of the 75-year actuarial window, the system would be running surpluses in excess of $1.8 trillion (in constant $2005).
* Much of the short-term cash-flow shortfalls are due to the redemption of recognition bonds, not to the diversion of payroll taxes to the individual accounts. These recognition bonds convey many benefits in terms of ownership as well as speeding the date at which Social Security changes from deficit to surplus. It is essentially a prepayment of future Social Security benefits, and is not a new expense. Johnson's bill is the only Social Security reform bill with recognition bonds. Adding recognition bonds to other bills would considerably increase their short-term cash-flow deficits. The costs of the Johnson bill also include the cost of increasing the minimum Social Security benefit to 100 percent of poverty, a significant increase over the current minimum Social Security benefit.
* Individual accounts would eventually accumulate assets in excess of $38 trillion (in constant $2005). This would lead to substantial new savings, new investment, and economic growth.
* Once short-term debt is paid off, the employer portion of the payroll tax could be reduced to 3.04 percent. This would pay for disability and survivors' benefits.
* The Social Security Administration analysis shows that Rep. Johnson's bill can provide large individual accounts while restoring Social Security to permanent sustainable solvency, and can do so in a fiscally responsible manner. While the up front costs will be significant, they will be less than those for other big-account plans, and eventually those costs will be more than offset by the savings to the system.