Social Security: Evaluating Reform Proposals (Letter Report, 10/29/1999,
GAO/AIMD/HEHS-00-29).

Pursuant to a congressional request, GAO analyzed the potential
budgetary and economic effects of several Social Security reform
proposals.

GAO noted that: (1) GAO's assessments of the reform proposals are based
on the analytic framework GAO provided to Congress last March; (2) that
framework consists of three basic criteria: (a) the extent to which the
proposal achieves sustainable solvency and how it would affect the
economy and the federal budget; (b) the balance struck between the twin
goals of income adequacy and individual equity; and (c) how readily such
changes could be implemented, administered, and explained to the public;
(3) GAO used its long-term economic model in evaluating the various
proposals against the first criterion, that of financing sustainable
solvency; (4) specifically, GAO used this model to simulate the
potential fiscal and economical impacts of each proposal over a 75-year
projection period; (5) GAO offers these simulation results not as
precise forecasts but rather as a useful way to compare the potential
outcomes of alternative policies within a common economic framework; (6)
although any proposal's ability to achieve and sustain solvency is
sensitive to economic and budgetary assumptions, using a common
framework can facilitate comparisons of alternative reform proposals;
(7) GAO simulation results also compare each proposal with alternative
fiscal policy paths developed in its prior model work; (8) GAO used
qualitative research to examine how well the proposals balance adequacy
and equity concerns and provide for reasonable implementation and
communication of any changes; (9) the use of these criteria to evaluate
various reform proposals highlights the trade-offs that exist between
efforts to achieve solvency for the Old Age and Survivors Insurance and
Disability Insurance trust funds and to maintain adequate retirement
income for current and future beneficiaries; (10) in addition, any
proposal that would guarantee benefits and rely on enhanced rates of
return on individual accounts to finance long-term solvency may create
certain contingent liabilities that could serve to increase the deficit
over the long term; and (11) further, in any reform proposal, attention
must be paid to the impact on poverty among the elderly.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  AIMD/HEHS-00-29
     TITLE:  Social Security: Evaluating Reform Proposals
      DATE:  10/29/1999
   SUBJECT:  Social security benefits
	     Federal social security programs
	     Comparative analysis
	     Economic analysis
	     Econometric modeling
	     Fiscal policies
	     Future budget projections
IDENTIFIER:  Social Security Program
	     Old Age and Survivors Insurance Trust Fund
	     Social Security Disability Insurance Trust Fund

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Report to Congressional Requesters

November 1999

SOCIAL SECURITY

Evaluating Reform Proposals
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GAO/AIMD/HEHS-00-29

Social Security: Criteria for Evaluating Social Security Reform Proposals
Social Security Reform: Implementation Issues for Individual Accounts
For our evaluation of the President's January proposal, see Social
Security: What the President's Proposal Does and Does Not Do (GAO/T-
AIMD/HEHS-99-76, February 9, 1999), and Social Security and Surpluses:
GAO's Perspective on the President's Proposals
(GAO/T-AIMD/HEHS-99-96, February 23, 1999). For our observations on the
President's Midsession Review, see Federal Budget: The President's
Midsession Review
See Social Security: Individual Accounts as an Element of Long-Term
Financing Reform (GAO/T-HEHS-99-86, March 16, 1999); Social Security
Reform: Implications of Private Annuities for Individual Accounts
(GAO/HEHS-99-160, July 30, 1999); Social Security: Issues in Comparing
Rates of Return With Market Investments (GAO/HEHS-99-110, August 5, 1999);
Social Security Reform: Implications of Raising the Retirement Age
                                                        Comptroller General
                                                       of the United States

B-283957

November 4, 1999

Congressional Requesters

This report responds to your request that we analyze the potential
budgetary and economic effects of several Social Security reform
proposals, together with the Social Security framework outlined by the
President and his Universal Savings Account (USA) proposal. We agreed to
examine how these proposals balance adequacy and equity concerns and
provide for reasonable implementation and communication of any changes. A
wide array of proposals has been put forth to restore Social Security's
long-term solvency, reflecting different perspectives on and approaches to
addressing the program's financing problem. 

As requested, we examined the following reform proposals: (1) the Social
Security Guarantee Act outlined by Ways and Means Committee Chairman Bill
Archer and Social Security Subcommittee Chairman Clay Shaw,
(2) H.R. 1793, the 21st Century Retirement Security Act, (3) the Senate
Bipartisan bill announced by Senators Judd Gregg, Bob Kerrey, John Breaux,
and Chuck Grassley, (4) the Social Security plan outlined by Budget
Committee Chairman John Kasich, and (5) the Social Security framework
outlined by the President, including the USA proposal. On October 13,
1999, we briefed your offices on the results of our analysis. Our
briefing, updated to reflect the President's October 26, 1999, Social
Security financing proposal, is reprinted in appendix I. We conducted this
work from August 1999 through October 1999 in accordance with generally
accepted government auditing standards.

As agreed with your offices, our assessments of the reform proposals are
based on the analytic framework we provided to the Congress last
March./Footnote1/ That framework consists of three basic criteria: 

o   the extent to which the proposal achieves sustainable solvency and
  how it would affect the economy and the federal budget,

o   the balance struck between the twin goals of income adequacy (level
  and certainty of benefits) and individual equity (rates of return on
  individual contributions), and

o   how readily such changes could be implemented, administered, and
  explained to the public./Footnote2/

In evaluating each of the proposals against the three basic criteria, we
used a set of detailed questions, which can be found in the appendix to
this letter, that help describe potential effects of reform proposals on
important policy and operational aspects of public concern.

As you requested, we used our long-term economic model in evaluating the
various proposals against the first criterion, that of financing
sustainable solvency. Specifically, we used this model to simulate the
potential fiscal and economic impacts of each proposal over a 75-year
projection period. We offer these simulation results not as precise
forecasts but rather as a useful way to compare the potential outcomes of
alternative policies within a common economic framework. Although any
proposal's ability to achieve and sustain solvency is sensitive to
economic and budgetary assumptions, using a common framework can
facilitate comparisons of alternative reform proposals. Since 1992, we
have provided the Congress with a long-term perspective by modeling the
implications of differing fiscal policy paths for the nation's
economy./Footnote3/ For these paths we use the Trustees' intermediate
estimates for Medicare and Social Security spending; in other respects, we
generally rely on the Congressional Budget Office's (CBO) fiscal and
economic assumptions. 

In simulating the reform proposals, we relied on income and cost estimates
prepared by the Office of the Actuary at the Social Security
Administration (SSA), and we adapted the model as appropriate to reflect
specific reform proposal provisions. We considered each proposal in
isolation. That is, we did not include any other proposals made by reform
sponsors or the President that would have other fiscal effects, such as
proposed non-Social Security related tax cuts or spending increases. For
the President's financing proposal, we analyzed the transfers as specified
in his October 1999 proposal-the Strengthen Social Security and Medicare
Act of 1999./Footnote4/ That administration proposal does not include
USAs. Since we did not have sufficient data to simulate USAs, we provide a
qualitative evaluation. As you requested, our simulation results also
compare each proposal with alternative fiscal policy paths developed in
our prior model work. 

We used qualitative research to examine how well the proposals balance
adequacy and equity concerns and provide for reasonable implementation and
communication of any changes. In so doing, we relied on GAO's issued and
ongoing body of work on Social Security reform. This work addresses
various issues raised by reform approaches, including establishing
individual accounts, raising the retirement age, and the impact of reforms
on minorities and women./Footnote5/

The use of these criteria to evaluate various reform proposals highlights
the trade-offs that exist between efforts to achieve solvency for the Old
Age and Survivors Insurance and Disability Insurance (OASDI) trust funds
and to maintain adequate retirement income for current and future
beneficiaries. For example, proposals that achieve solvency by reducing
current-law benefits and establishing individual accounts will result in
greater uncertainty and variability in retirement income levels among
similarly situated individuals. In addition, any proposal that would
guarantee benefits and rely on enhanced rates of return on individual
accounts to finance long-term solvency may create certain contingent
liabilities that could serve to increase the deficit over the long term.
Further, in any reform proposal, attention must be paid to the impact on
poverty among the elderly. 

We requested comments on a draft of this report from the Social Security
Administration. SSA provided technical comments, which we have
incorporated as appropriate.

As agreed with your offices, unless you publicly announce the contents of
this report earlier, we plan no further distribution until tomorrow. At
that time, we will send copies to the Honorable Bill Archer, Chairman, and
the Honorable Charles B. Rangel, Ranking Member, House Ways and Means
Committee; the Honorable Clay Shaw, Chairman, and the Honorable
Robert T. Matsui, Ranking Member, Subcommittee on Social Security, House
Ways and Means Committee; other interested congressional committees; the
Honorable Kenneth S. Apfel, Commissioner of Social Security; and the
Honorable Lawrence Summers, Secretary of the Treasury. Copies will be made
available to others upon request. 

If you or your staffs have any questions about this report, please contact
Cynthia M. Fagnoni, Director, Education, Workforce, and Income Security
Issues, on (202) 512-7215 or Paul L. Posner, Director, Budget Issues, on
(202) 512-9573.

*****************

*****************

David M. Walker
Comptroller General 
of the United States

List of Requesters

The Honorable John B. Breaux
The Honorable Charles E. Grassley
The Honorable Judd Gregg
The Honorable Robert Kerrey
United States Senate

The Honorable John R. Kasich
The Honorable Jim Kolbe
The Honorable Charles W. Stenholm
House of Representatives

--------------------------------------
/Footnote1/-^(GAO/T-HEHS-99-94, March 25, 1999).
/Footnote2/-^(GAO/HEHS-99-122, June 18, 1999) and Social Security Reform:
  Administrative Costs for Individual Accounts Depend on System Design
  (GAO/HEHS-99-131, June 18, 1999).
/Footnote3/-^For more information on GAO's long-term model, see Budget
  Issues: Long-Term Fiscal Outlook (GAO/T-AIMD/OCE-98-83, February 25,
  1998).
/Footnote4/-^(GAO/OCG-99-29, July 27, 1999).
/Footnote5/-^(GAO/HEHS-99-112, August 27, 1999); Social Security Reform:
  Implications for Women (GAO/T-HEHS-99-52, February 3, 1999); and Social
  Security and Minorities: Current Benefits and Implications of Reform
  (GAO/T-HEHS-99-60, February 10, 1999).

EVALUATING SOCIAL SECURITY REFORM PROPOSALS
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(935328/207079/935339)

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