Treasury Publishes 4th Issue Brief - True Pre Funding

The US Treasury has published its fourth issue brief on Social Security. You may find it at www.treas.gov/press/releases/reports/ss_issuebrief_no.4.pdf. This brief discusses mechanisms for achieving true pre-funding. Treasury considers the current "trust fund" which is held off the books of the government not to be true pre funding. Treasury takes the position that if a portion of Social Security tax was placed into individual accounts in the name of each taxpayer, the debt obligation would move onto the books. While it would still be the government which owes the Social Security benefits, such a move would make it apparent that the debt exists. The funds could not be diverted for general governmental purposes as is done now. The issue brief does not contemplate individual direction of the investment of the accounts; rather the funds would be invested in regular US Treasury obligations and would be administered in the aggregate. This would keep the economic distortion to a minimum and would not result in large administrative costs. Benefits would be paid as annuities, similar to the current system. The issue brief cites the "Nonpartisan Reform Plan" as an illustrative mechanism for true pre funding. The Nonpartisan Reform Plan may be found at www.nonpartisanssplan.com.

This proposal is a long way from true ownership of the assets one accumulates in the Social Security program and certainly does not resolve some of the equity issues but, in my opinion, it provides a reasonable and thoughtful way to commence the discussion. Importantly, it contemplates solvency in the long run. I urge interested readers of this blog to review the two reports.

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