Liberal Social Security reform plan would reduce the economy by $87 billion per year by 2025

Dec 22 2004

A new report released today by the non-partisan Congressional Budget Office finds that the leading liberal Social Security reform plan would lead to large, permanent tax increases and benefit cuts for future seniors, and would also shrink the U.S. economy.

“This non-partisan CBO study makes it clear that we can’t tax our way into long-term solvency on Social Security. Up to now, increasing taxes has been the plan advocated by liberal opponents of personal retirement accounts within Social Security,” said the outgoing chairman of the Special Committee on Aging Chairman, U.S. Senator Larry Craig (R-Idaho).

“Now we know that tax increases will be painful for workers and will hurt the economy. Liberals in Congress really need to look at this CBO report and step up with a new way to save Social Security for the long term. Perhaps a few will now be convinced to join with the President and personal retirement advocates as we move forward.”

The new CBO study examined a proposal put forward by Peter Diamond and Peter Orszag, experts with the left-of-center Brookings Institution. Under the Diamond-Orszag plan to bring Social Security into long-term solvency, payroll taxes would be increased and more people would pay into Social Security. (Currently railroad workers, ministers and some state and local government employees do not pay into Social Security.) The proposal also targets some benefit reductions toward higher-wage workers.

“Looking at the latest CBO review, the tax increase plan being pushed by liberals would shrink our economy by $87 billion a year by 2025. In contrast, a updated CBO report released in September found that adding personal accounts within Social Security, and not increasing taxes, could add $58 billion each year to the economy during that same time frame,” Craig said. “It’s a simple choice for me. A stronger economy means more protection for seniors and their Social Security benefits.”

The earlier CBO report reviewed a proposal to create personal accounts, known as “Option 2", which was presented to President Bush by the bipartisan Commission to Strengthen Social Security, led by former U.S. Senator Patrick Moynihan, a New York Democrat.

Both CBO reports, the Long-Term Analysis of the Diamond-Orszag Social Security Plan, issued today, and the Long-Term Analysis of Plan 2, issued in July and updated in September, were requested by Chairman Craig.