Social Security Reform - A New Look

May 25, 2005

Overview
Social Security’s unfunded obligation is estimated at $11.1 trillion on a permanent basis, and $4.0 trillion over the next 75 years according a Social Security Trustees Report prepared by non-partisan actuaries.  These obligations must be met to ensure the high quality of life continues for all U.S. citizens.  The deficit in the Social Security Program is driven by factors such as a shift in the age of the population, inflation and slower growth in salaries of workers in the United States.

Environment
The viability of the Social Security Program has become a major political issue within the United States.  As both parties fight for position, the problem looms for all Americans.  Although, Social Security is not in imminent danger of collapsing, the issue needs to be address now due to the large amount of unfunded obligations expected in the future.

Objective
To reduce the $11.1 trillion in unfunded Social Security obligations to 0 within 50 years.

Solution
InstiGlobe recommends that the following actions be taken to reduce the unfunded obligations of the Social Security Program:

• Eliminate the current Federal Estate Tax and replace it with a smaller 10% Social Security Estate Tax payable to the Social Security Program for estates over $250,000 ($1.5 trillion over 50 years).

• Remove work restrictions on all employees collecting Social Security allowing older workers to the ability to continue to collect Social Security and pay into the Social Security fund if they decide to continue working after they reach retirement age ($1.5 trillion over 50 years).

• Develop a payroll tax incentive program for major corporations that limit international outsourcing ($2 trillion).

• Eliminate the mandatory retirement age for all Americans in both the government and private sector ($2 trillion over 50 years).

• Add a Social Security voluntary contribution box of $25, $50, $75, $100 or more on all U.S. federal Income tax returns.  Funds would be assessed on a voluntary basis as part of regular tax payments and allocated to the Social Security Administration (1 trillion over 50 years).

• Create a new organization called the Social Security Investment Corporation (SSIC) which would invest a portion of the Social Security funds generated above the “pay as you go” obligations in low-risk investment as approved by Congress ($2 trillion over 50 years).

• For every new infant born in the U.S. starting in 2009, initiate a $500 Social Security “At Birth Account” with the funds investing in U.S. government debt obligations.  This is not an individual investment account, but an interest-bearing portion of the individual’s overall Social Security Account initiated at the time of birth ($1 trillion over 50 years).

• No individual controlled personal investment accounts should be established and the current social security payments should be administered using the current process.

Implementation
These programs should be implemented by the U.S. Treasury Department and the Social Security Administration and should be funded with an initial annual budget of $5 billion to support the establishment and administration of these new programs.

Summary
This brief outlines an alternative plan to eliminate $11 trillion in unfunded Social Security obligations.   In order to ensure the long-term viability of Social Security, InstiGlobe strongly recommends that U.S. Government consider these funding alternatives.