The President's Proposal
T-HEHS/AIMD-00-43: Published: Nov 9, 1999. Publicly Released: Nov 9, 1999.
Pursuant to a congressional request, GAO discussed the President's proposal for Social Security financing, focusing on: (1) the extent to which the proposal achieves sustainable solvency and how the proposal would affect the economy and the federal budget; (2) whether the proposal balances individual equity and income adequacy; and (3) how readily changes could be implemented, administered, and explained to the public.
GAO noted that: (1) according to Administration officials, the President's proposal would constitute a "significant down payment" on Social Security reform while contributing to achieving the Administration's goal of eliminating publicly held debt by 2015; (2) while the President's proposal for Social Security financing differs in some respects from his earlier proposals, the bottom line of the proposal with respect to sustainable solvency is unchanged; (3) the proposal: (a) reduces debt held by the public from current levels, which reduces net interest costs, and raises national saving, thereby contributing to future economic growth; (b) provides general revenues to the Old Age and Survivors Insurance and Disability Insurance trust funds, thereby representing a fundamental change in Social Security financing; (c) has no effect on the projected cash flow imbalance in the Social Security program's taxes and benefits, which begins in 2014; and (d) represents a financing, rather than a Social Security reform proposal; (4) GAO's analysis shows that the President's Social Security transfer proposal has the same effect on the economy and the federal budget as a policy of "No Action" that would simply continue spending and revenue along its path while making no change in Social Security or Medicare benefits; (5) the President's Social Security transfer proposal does not address sustainable solvency; (6) because the President proposes no changes to the structure of the current Social Security system, his proposal does not affect income adequacy; (7) specifically, the President's proposal maintains current-law benefits for current and future retirees, including low-income workers and others most reliant on Social Security, and makes no changes to disabled, dependent or survivor benefits; (8) the proposal also makes no changes from the current Social Security structure in the way workers are covered, and it preserves the progressivity of the system; (9) in addition, it retains the compulsory nature of the current payroll tax; (10) because the President's transfer proposal does not alter the Social Security program in any way, there are no implementation costs, and the program's current administrative costs will remain less than 1 percent of benefit outlays; and (11) without programmatic change, there are no changes that must be explained to the public and no risk of an "expectations gap" with respect to benefits.