Jack Kemp Applauds New Study on Social Security Reform by Peter Ferrara

Today, Empower America co-director Jack Kemp joined advocates of Social Security reform at a press conference at the National Press Club in support of an innovative new study on Social Security reform authored by Peter Ferrara on behalf of the Institute for Policy Innovation (IPI). The full text of the study can be found at: www.ipi.org.

The following are Jack Kemp’s remarks:

“In a new study on Social Security reform conducted for the Institute for Policy Innovation (IPI), author Peter Ferrara presents an audacious proposal on how to save Social Security from bankruptcy and leave everyone better off. Peter Ferrara is a big-picture guy, with a bold vision and an uncanny ability to break down a complicated subject like Social Security into its fundamental parts and to explain the program’s problems and solutions in an easily understood, highly readable manner.

“The bottom line of Peter’s study is reassuring: By allowing workers to place an ample share of their payroll taxes into personal retirement accounts, it is possible to fully fund their retirement while guaranteeing every worker a retirement income no smaller than they are currently promised under the pay-as-you-go Social Security system; and the transition costs of moving to a fully funded system can be bond financed without raising taxes, cutting benefits or placing any undue fiscal burden on the federal government.

“I envision a new retirement system where every worker would have a fully funded personal account and the federal government would convert its present unfunded liability into a government guarantee. In other words, the federal government would essentially become retirement security insurer of last resort, making payments only to those retirees who, for whatever reason, did not have adequate resources in their personal retirement accounts to provide themselves with a retirement income equal to that which the government guarantees. I believe that guarantee should be exactly what workers are promised under the current Social Security system. (This approach is described in an earlier IPI study, “Who’s Afraid of the National Debt,” co-authored by Empower America chief economist Lawrence Hunter and Steven Conover, that analyzed the benefits of borrowing the transition costs involved in switching to a fully-funded personal accounts system.)

“There will be much debate over the details of any reform but Peter’s study lays out a framework within which those details can be negotiated and a consensus developed. Because Social Security is so complex, consisting of so many moving parts and so many variables, even minor changes in assumptions projected over a 75-year horizon can produce profound variations in projected outcomes. Therefore, it is imperative that whenever we discuss Social Security, we don’t focus solely on one set of assumptions or a point estimate on any of the variables. I think Peter’s study provides a reasonable and conservative estimate on how we can design Social Security reform so that our current projected liabilities slowly diminish and are eliminated over a 75-year timeframe.

“Specifically, Ferrara’s study illustrates that allowing workers to place five to six percentage points of their payroll taxes into personal retirement accounts can eliminate the unfunded Social Security liability that currently threatens to bankrupt the system in the next 40 years. The study also explains the fatal flaw of attempting to “reform” the current Social Security system by establishing small “two-percentage-point” personal accounts, which would not eliminate the projected Social Security deficit and would require benefit reductions, increases in the retirement age and/or future tax increases to prevent insolvency.

“One of Peter’s most exciting suggestions is that the system of fully funded personal accounts be made “progressive” by giving low-income workers the ability to place a larger share of their payroll taxes into personal accounts.”

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