SSP No. 8 April 30, 1997

Social Security

A Plan For Privatizing Social Security

by Peter J. Ferrara

Peter Ferrara is general counsel and chief economist at Americans for Tax Reform and an Associate Scholar of the Cato Institute.

Executive Summary

As Social Security’s problems become more apparent, there is growing support for the concept of privatizing the retirement program. As the debate grows it becomes more important to move beyond generalizations and provide detailed proposals for how such privatization can be accomplished. Without endorsing any specific proposal, the Cato Project on Social Security Privatization will present a number of possible privatization scenarios.

In this study, Peter Ferrara offers a proposal based on the following key elements:

The biggest objection to privatizing Social Security has been the transition to a privatized system. But the projections of the fiscal impact of the plan offered in this study show that the transition can be financed without new taxes and without cutting benefits for today’s recipients.

Indeed, the yearly transition deficit would be offset after about 14 years. After that, the privatization reform actually starts producing a surplus for the federal government. About 20 years after the reform is begun, that surplus would be large enough in 1996 dollars to eliminate completely a federal deficit as large as today’s.

These projections place the transition in a whole new perspective. They show that the transition is financially feasible and manageable, and that modest short-term sacrifices would lead to long-term surpluses that would ultimately reduce the federal budget deficit.

Full text of SSP No. 8  (Document size=89k)