Moving to a market-based Social Security system would cost less than propping up the current program, according to a new study by the Cato Institute.
Arguments against privatizing due to transition costs ignore the current system's $3 trillion in unfunded liabilities, said William Shipman, author of the study.
Taxes will have to be raised or benefits cut, or some combination of the two, to deal with the current system, Mr. Shipman said.
For example, for workers born in 1976, benefit cuts would exceed 25% by 2030 under the current schedule. Taxes would have to increase 43% from their current level to finance the benefits that would have to be paid under the current system, Mr. Shipman said.
A market-based system would provide income from market investments. In both systems the payroll deduction and the unfunded liability are the same, but the study shows the market-based system produces superior results. In the 75th year, the pay as you go system will have a cash flow deficit of about 1.7% of gross domestic product, while the market-based one would have a surplus of about 3.5% of GDP.
