21. Polling conducted by Rasmussen Research
be that total annual benefits would be reduced by
Corporation, July 1999.
the same amount as if each month's benefits had
been proportionally reduced.
22. The advisory committee was not able to reach
a consensus on what level should constitute the
16. David Koitz, "Measuring Changes to Social
trigger for permitting movement from Tier II
Security Benefits," CBO Long-Range Fiscal Policy
investments to Tier III. Several members favored a
Brief no. 11, December 1, 2003.
dollar amount, such as accumulations of at least
17. The President's Commission to Strengthen
$5,000. Others preferred a time-based trigger, for
Social Security, Strengthening Social Security and
example three years. Still others suggested an
Creating Personal Wealth for All Americans (Washing-
accumulation equal to 120 percent of the poverty
ton: Government Printing Office, December 2001).
level. Any of those options would ultimately be
For an analysis, see Andrew Biggs, "Perspectives on
acceptable.
the President's Commission to Strengthen Social
23. Workers could also move some or all of their
Security," Cato Institute Social Security Paper no.
Tier III assets back to Tier II, a platform with fewer
27, August 22, 2002.
features but lower costs. The competition among
18. This is by no means the only method of reduc-
Tier III providers, and between Tiers II and III,
ing promised Social Security benefits to a level actu-
would ensure that workers received the greatest
ally payable under a sustainable PAYGO system.
amount of goods and services at the lowest possi-
There is a fairly lengthy menu of such proposals,
ble cost. For more information on how this three-
including means testing, adjusting the retirement
tiered structure of investments would work, see
age, adding an additional bend point to the formu-
William Shipman, "How Individual Social
la for determining benefits, and changing spousal
Security Accounts Would Work," Investor's Business
benefits. See Michael Tanner, "No Second Best: The
Daily, December 1, 2003.
Unappetizing Alternatives to Individual Accounts,"
24. Counterintuitively, saving on a posttax basis,
Cato Institute Social Security Paper no. 24, January
with accumulation and payout tax-free, benefits
29, 2002. However, we believe that changing from
middle- and low-income individuals more than
wage to price indexing is one of the fairest ways to
proposals that would make contributions tax-free
restore Social Security to PAYGO solvency. For a
but payouts taxable. For further discussion, see
more in-depth discussion of the benefits of price
Jagadeesh Gokhale and Laurence Kotlikoff, "Who
indexing, see Matthew Miller, The 2% Solution: Fixing
Gets Paid to Save?" Tax Policy and the Economy 17
America's Problems in Ways Liberals and Conservatives
(2003): 11239.
Can Love (New York: Public Affairs, 2003), pp.
198207. In addition, it would be possible to offer
25. The determination of eligibility for this safety
workers the choice of receiving the full level of prom-
net will take place at the normal retirement age, 67
ised benefits but requiring them to pay the level of
for most workers covered under our plan, with
payroll taxes necessary to support those benefits.
workers at that age receiving the full subsidy,
Such a mechanism has been included in legislation
although payment would not take place until the
proposed by Sen. Lindsey Graham (R-SC). See the
worker annuitized his account. Workers choosing
Social Security Solvency and Modernization Act of
early retirement would have the amount of their
2003.
subsidy reduced in much the same way as workers
choosing early retirement have their current Social
19. Technically workers currently contribute 5.3
Security benefits reduced.
percent toward Old-Age and Survivors Insurance
For married couples, the determination of the
(OASI) and 0.9 percent to Disability Insurance
federal guarantee would take place at the time
(DI). Under our proposal, the employer would
that the older spouse reached retirement age. The
assume responsibility for the entire DI contribu-
government would take into consideration the
tion (1.8 percent) and would continue to pay 4.4
combined accrued assets in both accounts and
percent of capped payroll toward the OASI por-
provide sufficient additional funds to purchase
tion of Social Security.
both spouses an individual annuity equal to 120
20. The face value of recognition bonds would be
percent of the poverty level for a single adult.
calculated by applying the existing Social Security
26. See Andrew Biggs, "The Archer-Shaw Social
benefit formula (AIME/PIA) to the worker's past
Security Plan: Laying the Groundwork for Another
covered earnings. The actuarial present value of
S&L Crisis," Cato Institute Briefing Paper no. 55,
this accrued-to-date benefit would then be calcu-
February 16, 2000.
lated using a discount rate equal to the long-term
opportunity cost to government of capital (essen-
27. The Cato Institute is currently preparing
tially the 30-year bond rate), or roughly 3.5 per-
detailed cost projections for this proposal. Those
cent, and current age- and gender-specific expect-
results will be presented in a forthcoming paper.
ed mortality rates.
14