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Social Security Reform: The Use of Private Securities and the Need for Economic Growth [i) (January 2003)

handle is hein.congrec/cbo0735 and id is 1 raw text is: LONG-RANGE FISCAL POLICY BRIEF CBO A series of issue summaries from the Congressional Budget Office No. 7, January 3, 2003 Social Security Reform: The Use of Private Securities and the Need for Economic Growth Various proposals have called for using private securities to reform Social Security. Some would have the federal government buy them for the Social Security trust funds; others would have workers invest in them by diverting, to personal accounts, some of the federal taxes that they pay. As significant as those changes may seem, their economic effects are largely uncertain. By itself, using government resources to buy stocks and bonds, without other spending and tax changes, would not automatically lead to an increase in the nation's pool of investment resources--there is no free lunch. With one hand, the government would buy or make resources available to acquire securities; with the other, it would continue to borrow; and what the resulting impact on national savings and investment would be is unclear. Much would depend on reactions--in personal savings and fiscal policies--that are not predictable. It is the economy's capacity to grow, however, that offers the greatest security to the nation's aging population. Under current projections, the number of people age 65 or older will nearly double from 2000 to 2030, growing by 34 million. In contrast, the number of workers will rise by only 24 million. Whereas there were 4.4 workers for every aged person in 1970, there will be only 2.6 in 2030. To a large extent, the goods and services that society will consume in 2030 will have to be produced then, and with the demographic shift, greater demands will be imposed on the nation's workers. Consequently, expanding the economy to create a larger base of production is critical. Much of the current debate about Social Security has centered on how to establish claims on future resources for the system. The use of private versus public securities, the creation of personal accounts, the scheduling of future tax increases, and reliance on future borrowing by government--while different both in form and potential effects--are all means of financing that prescribe how resources would be drawn from the economy, not

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