The Center on Budget and Policy Priorities (CBPP) released a report critical of Rep. Paul Ryan’s “Roadmap Plan” for reforming Social Security, Medicare, private healthcare, and the tax code. While they’re well within their rights to do so, some of their charges regarding the Social Security elements of Rep. Ryan’s plan seem clearly mistaken. (Rep. Ryan’s Budget Committee staff has responded to the critiques spanning the full Roadmap Plan here.)
First, the CBPP report states that
Because the [Roadmap] plan would divert massive sums from Social Security to private accounts, it would leave the program with a deep financial hole. The plan would close that hole by transferring $4.9 trillion over the next 60 years from the rest of the budget to Social Security, an amount that exceeds what it would take to make Social Security solvent for the next 75 years if no other action was taken.
I’ve been uncomfortable with Social Security plans that involved large general revenue transfers, since the government isn’t exactly flush with extra cash these days. But Ryan’s Roadmap plan for Social Security doesn’t have this problem. A combination of benefit reductions for higher-earning individuals, indexing the retirement age to increases in life expectancies, and making employer-sponsored health benefits subject to payroll taxes would keep Social Security solvent even as a portion of the payroll tax was used to fund voluntary personal retirement accounts. It appears that CBPP’s claim is based on a previous Ryan proposal, which did include general revenue transfers, but in this case it seems pretty clearly incorrect.
Second, the CBPP report states that
Under the Ryan plan, individuals who divert a portion of their payroll tax contributions to private accounts would be guaranteed that they would receive back in retirement at least as much as they contributed, plus an adjustment for inflation. In essence, they would be given a federal guarantee against stock-market losses. The chief actuary of the Social Security system has estimated that, on average and adjusting for market risk, an earlier version of the Ryan plan’s guarantee would cost the government $2.9 trillion in present-value terms (although the actual cost could turn out to be higher or lower, depending on actual bond and stock returns).
The problem here is that the guarantee in the current Roadmap plan, which the CBPP issue brief correctly describes, differs significantly from that of the earlier Ryan plan CBPP references. Ryan’s current proposal guarantees only that plans won’t lose money after adjusting for inflation; that’s a pretty cheap guarantee to offer. Earlier versions guaranteed that account holders would receive no less than promised under current law. For some workers, that would require a rate of return on accounts exceeding 6 percent, which is a lot more expensive to do. Whenever a guarantee is offered it should be priced using market principles, but there’s no way the Roadmap’s current guarantee costs $3 trillion.
What’s a little disappointing is that the Congressional Budget Office report on Ryan’s plan has been available since late January, so there’s no need to rely on outdated Social Security Administration analyses of older versions of Ryan’s proposals.