Social Security Financing:

Implications of Stock Investing for the Trust Fund, the Federal Budget, and the Economy

T-AIMD/HEHS-98-152: Published: Apr 22, 1998. Publicly Released: Apr 22, 1998.

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Paul L. Posner
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Pursuant to a congressional request, GAO discussed its work on the government stock investing option, focusing on: (1) the implications of government stock investing for the Social Security Trust Fund; (2) the impact of stock investing on the federal budget and national saving; and (3) implementation issues related to selecting and managing a stock portfolio that could affect the degree of government involvement in corporate affairs.

GAO noted that: (1) government stock investing is a complex proposal that has potential consequences for Social Security, the federal budget, and national saving; (2) it also differs in key ways from proposals to establish individual accounts; (3) for the Social Security Trust Fund, government stock offers the prospect of higher returns but, by itself, is unlikely to solve the program's long-term financial imbalance, and it would be accompanied by greater risk; (4) the key distinction between stock investing through the government and through individual accounts is that, under government stock investing, the risks and returns would be shared collectively through the government rather than borne individually; (5) more generally, individual accounts proposals would alter Social Security's current structure and scale back the income redistribution aspect of the current program; (6) from a budget perspective, shifting a portion of trust fund assets into the stock market would raise deficits or diminish surpluses in the short term but would not significantly affect national saving; (7) while government stock investing by itself has no direct effect on saving, it indirectly could prompt actions to raise savings by revealing the size of federal deficits excluding Social Security's temporary surpluses; (8) implementing a government stock investing proposal would raise issues about stock selection, administrative costs, and shareholder voting rights that, conceptually, do not pose major obstacles; and (9) however, some of these issues could raise concerns about increased government influence over the private sector.

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