Econ 205 public policy, Foldvary
Written assignment 4, Social Security, 20 pts. (2%), due March 6, 2018
Suppose that Social Security is immediately and entirely replaced by private accounts, in which each worker pays into the account the total of the employer and employee amounts, hence 12% of gross wages.
Suppose also that all obligations of Social Security are met, so that retired persons continue to receive it, and those who paid into SS would receive their proportional amounts.
Suppose also that the SS deficit, the amounts paid to recipients after the transition, is financed by government debt of $2 trillion, and the interest on bonds is 2%.
The SS-transition bonds are paid off over 30 years with a federal land-value tax of 50% of the land rent.
Suppose also that all these private accounts are financially invested in stock index funds that grow at a rate of 5%, and that this increase in savings generates economic investments which increase economic growth by 2%.
1) Analyze the equity, efficiency, and sustainability aspects of this replacement of Social Security with private accounts.
2) Can you think of a better transition plan?