April 9, 1999

April 9, 1999 | News Releases on Social Security

Social Security Can't be Saved Through 'Add-On' Accounts

WASHINGTON, APRIL 9, 1999-Lawmakers may think they can save Social Security by creating the "add-on" accounts touted by President Clinton in his State of the Union address, but this proposal leaves the program's flaws intact-and could make genuine reform more difficult to enact, Heritage Vice President Stuart Butler said today.

Key members of the House of Representatives are drafting legislation that would require federal budget surpluses to be distributed among taxpayers and invested in individual retirement accounts, Butler said. Proponents claim this will promote long-term reform of the program by creating an "infrastructure" of private accounts that will help voters become familiar with investing.

But the drawbacks of this approach outweigh the alleged benefits, Butler said. For one, the "add-on" accounts will last only as long as lawmakers manage to balance the federal budget. If the surpluses disappear, the accounts will have to be financed through new taxes, he said. And because workers cannot shift their current payroll taxes into the accounts, workers are not guaranteed a better rate of return on their Social Security dollar.

More important, Butler noted, the proposal does nothing to reform the Social Security system itself. "It still faces insolvency," he said. "In fact, using the budget surpluses for these 'add-on' accounts will likely diminish the prospects of real reform, because the money will no longer be available to finance the transition to a genuinely privatized Social Security system. Add-ons simply don't add up."

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