This paper analyzes the transition from the existing pay-as-you-go Social Security program to a system of funded Mandatory" Individual Retirement Accounts (MIRAs). Because of the high return on real capital relative to the very low return in a mature pay-as-you-go program, the benefits that can be financed with the existing 12.4 percent payroll tax could eventually be funded with mandatory contributions of only 2.1 percent of payroll. A transition to that fully funded program could be done with a surcharge of less than 1.5 percent of payroll during the early part of the transition. After 25 years, the combination of financing the pay-as-you-go benefits and accumulating the funded accounts would require less than the current 12.4 percent of payroll. The paper also discusses how a MIRA system could deal with the benefits of low income employees and with the risks associated with uncertain longevity and fluctuating market returns.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
5761.
Length: Date of creation: Sep 1996 Date of revision: Publication status: published relationship to a non-chapter. This should not happen. Please contact NBER. Handle: RePEc:nbr:nberwo:5761
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Find related papers by JEL classification: H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Michael D. Hurd & John B. Shoven, 1985.
"The Distributional Impact of Social Security,"
NBER Chapters,
in: Pensions, Labor, and Individual Choice, pages 193-222
National Bureau of Economic Research, Inc.
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Arnold Harberger, 1964.
"Taxation, Resource Allocation, and Welfare,"
NBER Chapters,
in: The Role of Direct and Indirect Taxes in the Federal Reserve System, pages 25-80
National Bureau of Economic Research, Inc.
[Downloadable!]
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