Cost of fixing Social Security rises longers Congress waits
Thursday, April 10, 2003
WASHINGTON -- The impact of moves to eliminate the Social Security's $10.5 billion shortfall, through benefit cuts or higher taxes, will become greater the longer Congress waits to act, the agency's chief actuary said Wednesday.
Stephen Goss told the Senate Finance Committee that the shortfall could be wiped out over the next 75 years through an immediate 13 percent cut in benefits or a nearly 16 percent increase payroll taxes. A third possibility is a 15 percent cut in benefits for people who become newly eligible this year.
He developed the scenarios at the senators' request to show the cost of waiting to fix the system.
Social Security's projected insolvency date was extended to 2042, one year later than what was projected a year ago, according to the annual trustees report released last month.
The system starts paying out more in benefits than it takes in from payroll taxes in 2018.
"Reforming Social Security will require an open and honest discussion about some politically difficult choices," said the committee chairman, Sen. Charles Grassley, R-Iowa. "But this discussion can occur only if we first agree on the size and scope of the problem."
Cutting benefits for current recipients is not an option and should be taken off the table, he said.
'Cost of delay'
"That's a price we should be willing to pay," he said. "There is, however, another price we don't have to pay. That's the cost of delay."
President Bush has proposed letting younger workers invest a portion of their payroll taxes in personal investment accounts. No action is expected until after the 2004 election.
But voluntary participation in such investment accounts complicates their design and administration, and potentially the cost, congressional investigators say.
Voluntary plans do tend to increase the value to participants, according to a General Accounting Office report released Wednesday. The United Kingdom, the Czech Republican and Germany offer incentives, such as government contributions and tax advantages.
"Incentives generally add to the value of the accounts, and therefore, ultimately to the retirement income the accounts will provide," the report said.
But voluntary accounts also create uncertainty about participation, which can cause problems with administering the system. In the United Kingdom, participation was much greater than expected, which resulted in unexpectedly high incentive costs.
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