1994-1996 Advisory Council on Social Security
Report of Advisory Council on Social Security Meeting on December 14
The meeting began with a presentation comparing the three illustrative plans that the Council has been considering in terms of replacement rates and moneysworth for low, average and high earners. The members discussed some of the assumptions that were made in preparing the charts used in the presentation. Sylvester Schieber indicated that the charts used in the presentation included only people who were never disabled and who lived until retirement age. Edith Fierst asked what the moneysworth charts would look like if people who became disabled or died were included. Steve Goss (OACT) indicated that the relationships would be similar, but that, overall, the system would not be as good a deal. He later provided rough numbers including all people.
The members then engaged in a general discussion about the pros and cons of the so-called "big personal savings account". (This plan would use 5 percent of the FICA tax to establish personal savings accounts.) Several members expressed concern about this plan. Specifically they were concerned about the cost of the transition, pressure to tap the savings accounts for worthy causes before retirement, concerns about whether or how to annuitize the savings at retirement, and caution that this kind of change was a fundamental change in the social contract that could lead to unintended adverse consequences.
On the other hand, members who favored the personal savings account approach expressed concerns that the current system was not supportable, that young people had no confidence in it, and that some mechanism to increase National savings rates was necessary.
Robert Ball then presented a new version of a plan which would largely retain the current system, but would deal with the deficit by making some minor changes and instituting a "failsafe" tax increase for the future. This version of the plan would take account of the change in the President's budget which assumes a decrease in the annual CPI increase because of changes to be made in the CPI by the Department of Labor. The members largely reprised their discussion from the November meeting regarding whether a change in the CPI would result in a change in the real wage growth.
Chairman Gramlich presented a new version of a plan to scale back the current system to keep it within the 12.4 percent FICA tax by reducing the bend points in the benefit formula rather than going to a double decker system. This plan would also institute a required 2 percent additional tax for a personal savings account. This plan is intended to represent a mid-point between the "big personal savings account" plan and the plan to largely maintain the current system.
The Council took a "straw" vote to see how much support each of these plans had. The plan to largely maintain the current system got 6 votes, the "big" personal savings plan got 5 votes, and the middle ground plan to cut back the system and include a 2 percent savings plan got 2 votes.
The meeting ended with a general discussion of how to proceed on the report. Council members are going to communicate their comments to staff and to Chairman Gramlich, as necessary. The members, either individually, or in groups, are also going to prepare any supplementary statements that they may want to be included in the report. The possibility of holding an additional meeting to finish outstanding work was held open.