FIXING SOCIAL SECURITY

February 2005
		President Bush has launched a national campaign to generate support for his plans to reshape Social Security, including the controversial option of personal investment accounts for younger workers. Peter Orszag, senior fellow in economic studies at the Brookings Institution, and Michael Tanner, director of health and welfare studies at the Cato Institute, answer your questions about the voluntary personal accounts and other aspects of the president's plan. Special Report: Social Security Reform

Forum Introduction What are President Bush's plans for Social Security disability? Didn't Great Britain undertake the personal accounts experiment with their version of Social Security to detrimental results? How do the personal accounts affect employers' contributions to Social Security? How would removing the $90,000 income limit on Social Security taxes affect the system's future? What happens if a person's private account runs out? How will the average person who knows nothing about investing fare under President Bush's new plan? How does the federal Thrift Savings Plan differ from Social Security? Under the personal accounts proposal, will there be fees for investing, and who and how will they be paid? If the IOUs in the Social Security trust fund were paid, would the system remain solvent for a much longer time? Why would anyone want to change Social Security, an insurance program, into a savings account? I'm 48, how drastic are my benefit cuts going to be?	Dora Keller of New York, N.Y., asks: Isn't Social Security an insurance program? (FICA?) So why would anyone change an insurance policy into a savings account, even a good savings account? Michael Tanner responds: Insurance is meant to protect you against risk. But old-age is not a risk, it is a certainty. It is not, therefore, a proper subject for insurance. Imagine trying to buy car insurance for oil changes. At the same time, imagine an insurance policy that can raise premiums at any time and which is not legally required to pay any benefits (therefore can change or reduce those benefits) at any time. Would you really pay 12.4 percent of your income for such a policy? Peter Orszag responds: Social Security plays many roles. One is that it provides critical insurance against disability, death of a family member, or poverty in old age. As I explain in recent testimony (http://www.brook.edu/views/testimony/orszag/20050209.htm), the President's proposal is akin to borrowing against future Social Security in order to invest in the stock market. Especially since Social Security is supposed to provide the core tier of financial security during particular times of need, that makes no sense.