Social Security: Al Gore's Proposal Explained

In June, Access Press focused on George W. Bush’s proposal for Social Security. This month we will look at candidate Al Gore’s side of the “debate that could dominate the presidential campaign.”

The most important feature of Mr. Bush’s proposal for the future of Social Security is that he would take some money out of the current Social Security system and divert it into private Personal Retirement Accounts, or PRAs. This approach is often (and somewhat misleadingly) referred to as “privatization.” Candidate Gore unambiguously rejects this idea. Gore’s proposal would retain the essential character of the Social Security program as a “pay-as-you-go” system of social insurance, with the costs and risks spread among the entire working population.

While their different answers to the question “To privatize or not to privatize?” is the essence of the differences between the two candidates, there is more to the story. Mr. Gore also proposes to alter the traditional funding of the program in a significant way, and to address some of the aspects of the program that have become increasingly unfair to American women.

Effects on Disability and Survivor Benefits

Mr. Gore promises that his plan would involve no benefit cuts, and by choosing to retain the basic “pay-as-you-go” character of the program, that would most likely be true for the one third of Social Security beneficiaries who are Americans with disabilities, survivors and their families. Under Mr. Bush’s PRA system, benefits paid by traditional Social Security would almost certainly have to be cut to pay for the costs of transition to the new program. These cuts would greatly affect recipients of disability and survivors’ benefits, since the PRA accounts would be designed strictly to provide retirement income.

 

Increased Progressivity in Funding

Mr. Gore’s proposal would make a significant change in the financing of the Social Security system by, in effect, switching from a total reliance on a flat payroll tax to a system partially paid for out of general revenues.

In a nutshell, what Mr. Gore proposes is to use the money in the general budget surplus to pay off the national debt. He would then dedicate the money that would have been spent on paying the interest on that debt – some $100-200 billion per year starting in 2011 – and apply it to paying Social Security benefits. This would extend the solvency of the program from the currently-projected 2037 to the year 2050.

Mr. Gore’s proposal would involve a significant shift in the responsibility for paying benefits in the future. Here’s how: Since interest on the national debt is paid for out of general revenues, and Social Security benefits are paid for by a tax on wages (and only wages up to $72,000/year) Mr. Gore’s proposal would in effect shift a significant share of the funding of Social Security from the payroll to the income tax, which is the source of most of our general revenues. This would be a more progressive funding system, since the income tax is progressive and the current Social Security tax is somewhat regressive.

Two notes of caution: First of all, Al Gore could only be President until 2009 at the latest. His plan calls for the diverting of this money to begin in 2011. Exactly how he would bind the actions of the president and/or the Congress after he is gone is not at all clear. Secondly, there are many factors that could reduce the size of the projected surpluses upon which his grand plan depends. There is an obvious danger in counting one’s chickens before they hatch.

 

Benefits for Women

The other major initiative proposed by Mr. Gore would increase benefits for women. Women tend to live longer than men and thus rely more heavily on the guaranteed, lifelong, and inflation-protected benefits provided by traditional Social Security. Beyond retaining these protections of the current system – protections that would not exist under a private account system – Mr. Gore proposes making two changes that would address some of the ways that the program has fallen short in protecting women.

First of all, the formula used to calculate Social Security benefits is based on a 35-year work life. Each year out of the workforce spent caring for kids or an ailing parent counts as zero in calculating benefits. Since women do most of this work, this means that up to now women have been, in effect, penalized by Social Security. Mr. Gore proposes a credit system that would increase Social Security benefits for these women by, on average, about $600 a year.

Secondly, Gore proposes increasing benefits for elderly widows. Currently, a retired couple receives Social Security benefits for both the husband and the wife. A woman who has not worked will receive 1/2 of her husband’s benefit, and her husband will receive his full benefit, so the couple will receive one-and-one/half times the single benefit. If the wife also worked for wages, she receives her benefit and he receives his. Under current law, if the husband dies the wife is entitled to a single benefit, the larger of the two. This could result in her benefits being cut almost in half.

Under Mr. Gore’s plan, widows would be allowed to receive 75% of pre-widowhood benefits, which his campaign says will result in increased benefits for 3 million women.

Mr. Gore’s two initiatives for women would consume about 5% of projected Social Security surpluses. As stated above, there are risks involved in committing to the spending of money that exists only in the future.

How the candidates’ proposals would actually fare in the Congress remains to be seen. Currently, no Republicans support Mr. Gore’s plan. On the other side of the aisle, a number of Democrats have expressed support for the type of individual account orientation that Mr. Bush has proposed.

Many things can change between now and inauguration day. Nevertheless, based on the positions taken by the candidates so far, the 2000 presidential campaign seems to provide a definite choice to voters on the issue of Social Security.

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