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?	Lee Baker of Minneapolis, Minn., asks: I am a single 48-year-old woman who is going to need Social Security to live. I do have a 401 K but no where near enough to cover all expenses. I work in advertising and there will be no health coverage provided by my company when I retire. How drastic are my benefit cuts going to be? Peter Orszag responds: One of the problems is that the only details released by the Administration involve individual accounts, which as the Administration itself admits do nothing to help restore solvency to Social Security. (Indeed, they may harm solvency. See http://www.brook.edu/views/testimony/orszag/20050209.htm.) I can't fully answer the question until the administration tells us how it is proposing to eliminate the deficit in Social Security. Under one of the leading plans from the President's Commission, though, you'd experience about a 3 or 4 percent benefit reduction. Michael Tanner responds: Any benefit changes would be phased in very slowly. Someone in your age group would probably see a reduction of only a few dollars a month in the government-provided portion of your benefits. However, you would also have the option of choosing an individual account. The returns from your account would enable you to compensate for any benefit reductions you receive, and possibly even get higher benefits.