Social Security:

Evaluating Reform Proposals

AIMD/HEHS-00-29: Published: Nov 4, 1999. Publicly Released: Nov 5, 1999.

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Pursuant to a congressional request, GAO analyzed the potential budgetary and economic effects of several Social Security reform proposals.

GAO noted that: (1) GAO's assessments of the reform proposals are based on the analytic framework GAO provided to Congress last March; (2) that framework consists of three basic criteria: (a) the extent to which the proposal achieves sustainable solvency and how it would affect the economy and the federal budget; (b) the balance struck between the twin goals of income adequacy and individual equity; and (c) how readily such changes could be implemented, administered, and explained to the public; (3) GAO used its long-term economic model in evaluating the various proposals against the first criterion, that of financing sustainable solvency; (4) specifically, GAO used this model to simulate the potential fiscal and economic impacts of each proposal over a 75-year projection period; (5) GAO offers these simulation results not as precise forecasts but rather as a useful way to compare the potential outcomes of alternative policies within a common economic framework; (6) although any proposal's ability to achieve and sustain solvency is sensitive to economic and budgetary assumptions, using a common framework can facilitate comparisons of alternative reform proposals; (7) GAO simulation results also compare each proposal with alternative fiscal policy paths developed in its prior model work; (8) GAO used qualitative research to examine how well the proposals balance adequacy and equity concerns and provide for reasonable implementation and communication of any changes; (9) the use of these criteria to evaluate various reform proposals highlights the trade-offs that exist between efforts to achieve solvency for the Old Age and Survivors Insurance and Disability Insurance trust funds and to maintain adequate retirement income for current and future beneficiaries; (10) in addition, any proposal that would guarantee benefits and rely on enhanced rates of return on individual accounts to finance long-term solvency may create certain contingent liabilities that could serve to increase the deficit over the long term; and (11) further, in any reform proposal, attention must be paid to the impact on poverty among the elderly.

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