Department of "Huh?"
The Tree of Tax Hikes and Social Security Privatization

Social Security Private Accounts: Add-ons and Carveouts

Andrew Samwick points out that, in his (and Jeff Leibman's, and Maya MacGuineas's) centrist consensus Social Security reform plan, 5/6 of the funding for private accounts is an add-on to funding currently dedicated to the Social Security trust fund, and only 1/6 is a carve-out. That bringing of an extra 2.5% of taxable payroll to the funding table seems to me to be a huge win for the AARP side, and not something that should generate objections from the left.

Andrew writes:

Vox Baby: Carveouts: I would say that the most contentious issue at yesterday's AEI presentation was the issue of a "carveout," in which some of the revenues that would otherwise go into the Social Security trust fund are allocated instead to personal retirement accounts. You can hear this very clearly in David Certner's comments. It appears that this may be a "line in the sand" from AARP....

In the LMS plan, contributions of 3 percent of taxable payroll are made to PRAs, with 1.5 percentage points coming from an increase in the payroll tax and 1.5 percentage points coming from the Social Security system. The latter part is the so-called carveout. However, most (about 2/3 over the 75-year projection period) of that contribution is funded by raising the cap on the maximum taxable earnings level. The rest of it is funded by benefit reductions. We believe that we need PRAs of that size in order to get the right-of-center folks to support the plan. But it is worth emphasizing that we are making very minor changes to the projected path of the Trust Fund....

The reductions in the Trust Fund ratios over the next 25 years seem to be a small price to pay to come to a compromise on a plan that, taken as a whole, greatly enhances the retirement security of future generations.