September 21, 2005

By Jason Furman

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On July 14, Rep. Jim McCrery (R-LA) and various other Republican members of the House of Representatives introduced H.R. 3304.  This legislation, similar to a plan proposed by Senator Jim DeMint (R-SC), would establish Social Security private accounts, called “GROW accounts.”  These accounts would receive total annual contributions equal to the size of the annual surplus in Social Security (not counting the interest that the Social Security Trust Funds earn on their bonds) for as long as the surplus lasted, which CBO estimates is through 2020.  Account holders would have their traditional Social Security benefits reduced in return.

Supporters of the DeMint-McCrery plans acknowledge that their plans would not restore Social Security solvency.  They argue that their proposals are a first step toward larger accounts and subsequent steps to restore solvency.

In July, the Social Security actuaries released detailed analyses of these plans.  The actuaries’ analyses formed the basis for a detailed examination of the plans by the Center on Budget and Policy Priorities.[1]  Now the Congressional Budget Office has issued its own analysis of the McCrery proposal.  The CBO analysis largely confirms the earlier analyses and also contains some striking new findings.[2]  Highlights of the CBO report include:

CBO did not explicitly analyze S. 1302 (the “Stop the Raid on Social Security Act of 2005”) introduced by Senator DeMint in June.  Much of CBO’s analysis of GROW accounts would apply, however, to the DeMint plan, as well.   That plan would increase federal spending by the same amount as the McCrery plan.  In addition, like the McCrery plan, it would make Social Security’s solvency problems worse, were it not for the inclusion in the plan of a budget gimmick in the form of large, unpaid-for general-revenue transfers.  Also, the DeMint plan, like the McCrery plan, could result in benefit reductions for some retirees.  Finally, the DeMint plan also would result in a large permanent increase in the debt held by the public, although relative to genuine reform, that increase would be modestly smaller than the increase under the McCrery plan, because the DeMint plan includes slightly smaller general-revenue transfers.

End Notes:

[1] Jason Furman and Robert Greenstein, “The DeMint and McCrery Social Security Plans,” Center on Budget and Policy Priorities, July 20, 2005.

[2] Congressional Budget Office, “Analysis of H.R. 3304, Growing Real Ownership for Workers Act of 2005,” September 13, 2005.

[3] This is essentially identical to the $25 billion estimate published by the Center on Budget and Policy Priorities on June 22, 2005.

[4] Technically, the Social Security actuaries compare the debt to a “scheduled benefits” baseline that assumes that full Social Security benefits are paid even after the trust fund is exhausted.  In contrast, CBO uses a “payable benefits” baseline that assumes that reduced Social Security benefits are paid after the trust fund is exhausted so no solvency problem remained.  After 75 or 100 years, the CBO method is effectively the same as using a baseline that assumes enactment of a plan that restores solvency without general-revenue transfers, i.e., solely through benefit cuts and/or revenue increases.

The Social Security actuaries treat the general-revenue transfers called for under the McCrery plan as intragovernmental transfers that do not add to the total debt.  In contrast, CBO assumes that these transfers reduce the amount of genuine Social Security reform that is undertaken and thus increase costs and debt, relative to the baseline that CBO employs.