Briefing Book

White House Conference

American Institute of Certified Public Accountants 1455 Pennsylvania Avenue, NW Washington, DC 20004-1081 (202) 737-6600 fax (202) 638-4512 UNDERSTANDING SOCIAL SECURITY: THE ISSUES AND ALTERNATIVES The American Institute of Certified Public Accountants (AICPA) released, on the eve of the White House Summit on Social Security, a comprehensive, non-partisan analysis of the major options to reform Social Security in an effort to aid legislators in what is expected to be a complex and contentious debate in the 106th Congress. "It lends a cold, hard, objective eye to various reform options and their effects on all segments of the population - including widows, the very old and minorities," said David A. Lifson, chair of the organization's Tax Executive Committee. "Decision makers need facts - not spin," said Lifson. "Before Congress takes a position on the 'right' solution for Social Security reform. the AICPA strongly urges policymakers and the public to have a clear understanding of the issues." Some of the facts highlighted in the study, Understanding Social Security: The Issues and Alternatives, include: Social Security keeps the majority of Americans over 65 out of poverty; in fact, for 40 percent of America's elderly, Social Security accounts for more than 75 percent of total income at retirement. About 90 percent of current retirees receive only $750 per month, on average, from Social Security, and future retirees will likely receive even less. Serious pockets of poverty still exist for the elderly, and therefore there is a corresponding reliance on Social Security income. Older women are twice as likely as men to be in poverty and for both African Americans and Hispanic Americans, the elderly poverty rates hover at approximately 25 percent - about two and a half times larger than that for white Americans. The number of workers to every 1 beneficiary continues to decline. In 1960, the worker-to-beneficiary ratio was 8.6 to 1, currently it is 3.3 to 1 and is projected to be 2.2 to 1 in 2025. "Reform will have a far-reaching effect on all Americans, and current and future beneficiaries must understand the implications of reform in order to reach a consensus, and to gain broad acceptance of a new system," said Daryl Jackson, chair of the AICPA's Social Security Task Force and invited participant to the White House Summit on Social Security, which is scheduled to begin in Washington on December 8. "That's why this study is so important - it's the definitive resource for the Social Security debate." Among the major issues examined in the AICPA's study are: The Current Financial Condition of Social Security Social Security and Poverty in America Social Security and Individual Fairness (in terms of benefits and investments) Social Security and the National Economy Social Security and the Stock Market Options for Reform The study takes an in-depth look at six major reform options including: The Maintenance of Benefits Proposals The Individual Accounts Proposal The Personal Security Account Proposal Feldstein-Samwick Personal Retirement Account Plan The Moynihan Social Security Solvency Act of 1998 The 21st Century Retirement Security Plan "With the aging of the Baby Boomers, time is no longer on our side," said Jackson. "The debate about Social Security reform, adoption of new legislation, and an effective transition from the old to the new must happen in the near - not distant - future. The longer we delay, the more difficult and painful the solution will become." The AICPA collaborated over two years with a group of leading CPAs, tax specialists and economic analysts to develop the study. The AICPA is the national professional association of CPAs with more than 330,000 members in public practice, business and industry, government and education. The AICPA is the first national professional membership association to be IS0 9001 certified in recognition of its quality management and assurance practices. Summary Evaluation of Options for Reform Soundness: Improves Condition of Fund? Money's Worth: Impact on Average Rate of Return? Poverty: Degree of Redistribution to Low Incomes? Growth: Probable Impact on Saving? Growth: Probable Impact on Labor Supply? I. Reduce benefits A. Across the board Yes Reduces Less More More B. Only for high-wage workers Yes Reduces More More More C. Increase retirement age Yes Reduces Depends More More II. Increase revenue A. Raise payroll tax rate Yes Reduces Depends More Less B. Raise ceiling on taxable earnings Yes Reduces More More Less III. Improve return on assets A. Invest trust fund in equities Yes Increases No effect No effect No effect B. Individual accounts No effect Increases Less Increases More Understanding Social Security: The Issues and Alternatives can be found on the AICPA's Internet website at www.aicpa.org/members/socsec.htm.