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Senator Joseph I. Lieberman – who once supported Social Security Personal Retirement Accounts – now says that Gov. George W. Bush’s plan to do so would “savage” Social Security by taking “$1 trillion out of the nest egg that belongs to every worker in America.” This is a great sound bite, but it clearly misrepresents the facts.
The only way to turn these overpaid taxes into real assets is to allow workers to invest this money in their own personal retirement accounts.
According to the Congressional Budget Office (CBO), Social Security will run $2.4 trillion in surpluses over the next ten years. Of this total, about $918 billion is from overpaid taxes and the remaining $1.5 trillion is from interest and other transfers from the general fund of the government. The $918 billion tax surplus is equal to an overpayment of about $5,125 for every worker in America.
Vice President Al Gore says these overpaid taxes should be used to retire government debt and build up IOUs in the Social Security Trust Fund. But the president’s own budget says this is just bookkeeping: “Unlike the assets of private pension plans, [government trust funds] do not consist of real economic assets that can be drawn down in the future to fund benefits.”
The only way to turn these overpaid taxes into real assets is to allow workers to invest this money in their own personal retirement accounts. Social Security’s current cash surpluses are roughly equal to 2 percent of payroll and could be diverted into workers’ accounts without affecting current beneficiaries. Since interest would continue to flow into the trust fund, Social Security’s surpluses would still total $1.5 trillion over the next decade.
If these accounts earned, say, 8 percent annually, workers would own nearly $3.6 trillion in assets by the time Social Security goes into deficit in 2015; and, they would own $35 trillion in assets by the time the trust fund runs out of IOUs in 2037. This must be why Lieberman once said “I think in the end that individual control of part of the retirement/Social Security funds has to happen.”