Book contents
- Frontmatter
- Contents
- Acknowledgments
- 1 Funding Social Security: An Introduction
- 2 Funded versus PAYGO Social Security
- 3 Funded versus Privatized Social Security
- 4 Funded versus PAYGO Social Security with Individual Accounts
- 5 Funded versus Means-Tested Social Security
- 6 Questions and Answers
- References
- Index
4 - Funded versus PAYGO Social Security with Individual Accounts
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Acknowledgments
- 1 Funding Social Security: An Introduction
- 2 Funded versus PAYGO Social Security
- 3 Funded versus Privatized Social Security
- 4 Funded versus PAYGO Social Security with Individual Accounts
- 5 Funded versus Means-Tested Social Security
- 6 Questions and Answers
- References
- Index
Summary
There are two middle positions between PAYGO Social Security and privatized Social Security. One is funded Social Security. The other is PAYGO Social Security with supplemental individual defined-contribution accounts. This chapter compares the two alternative middle positions.
PUBLICLY HELD INDIVIDUAL ACCOUNTS
The chairman (Gramlich, professor of economics at the University of Michigan) and one other member (Twinney) of the Advisory Council on Social Security propose supplemental individual accounts (IAs). They emphasize that such accounts are supplemental – Gramlich and Twinney favor preserving the PAYGO defined-benefit plan (with several changes to improve it). They also emphasize that there would be important restrictions concerning these individual accounts and entitle their proposal “Publicly Held Individual Accounts.” Under their IA proposal, there would be a compulsory additional contribution of 1.6% of covered payroll that would be held by the government as defined-contribution individual accounts. Individuals would select from a limited menu of investment choices provided by the government (one might be bond index funds; another, equity index funds). The individual accounts would be converted by the government to inflation-protected annuities when individuals retire.
Elsewhere, Gramlich (1996) explains that the IA plan is similar to one offered in 1995 by Senators Kerrey and Simpson in that both plans would finance new individual accounts with 1.6% of payroll. However, there is a crucial difference. The Kerrey–Simpson plan would keep the total payroll tax at 12.4%, whereas the IA plan would raise it to 14%.
- Type
- Chapter
- Information
- Funding Social SecurityA Strategic Alternative, pp. 123 - 146Publisher: Cambridge University PressPrint publication year: 1999