The future of Social Security is a topic that has long been a subject of debate and concern, and now, a pair of senators have proposed a bold plan to save it. Senators Bill Cassidy and Tim Kaine have put forward a proposal that relies on the stock market and a mountain of fresh debt to maintain current benefits and avoid any pain for recipients or taxpayers. But is this plan a smart move, or a risky gamble? In my opinion, it's a bit of both, and the potential consequences are worth exploring.
The Cassidy-Kaine plan is an ambitious one. It involves borrowing $1.5 trillion for an investment fund loaded with stocks and other risk assets, which would accumulate gains for 75 years. This, in theory, would offer better returns than Treasury bonds. But here's where things get interesting. The plan also requires another $25.1 trillion in borrowing to cover the gap between Social Security's revenue and benefits during those 75 years. And here's where the risk comes in.
The Boston College Center for Retirement Research ran some simulations and found that the senators' plan is unlikely to work. The plan assumes nominal stock returns of 8.9% a year, which is in line with past performance. But accounting for inflation, real returns would be about 6.5%. And even at that rate, the investment fund would only grow to $30.6 billion, which may not be enough to pay back the borrowed amount.
What's more, the report points out that loading up on that much debt could affect interest rates and the stock market. Total debt is already $39 trillion, and publicly held debt is 100% of GDP. This could have a significant impact on the economy and the stock market, which could, in turn, affect the returns on the investment fund.
But the Boston College report also sees potential for stocks in reforming Social Security. Using tax hikes or equivalent benefit cuts to shore up the trust fund and allocating 40% of it to stocks would keep it solvent indefinitely in most simulations. This suggests that while the Cassidy-Kaine plan may not work, stocks could still play a role in saving Social Security.
Looking to the stock market to rescue Social Security isn't a new idea. President Bill Clinton considered it during the 1990s, when stocks were riding the dot-com boom. And Sen. Ted Cruz has suggested that so-called Trump accounts for American children are part of an effort to revamp Social Security. But these ideas have not gained traction, and the Cassidy-Kaine plan faces significant challenges.
In my opinion, the Cassidy-Kaine plan is a risky gamble that may not pay off. While it has the potential to save Social Security, the potential consequences of failure are significant. The plan relies on a number of assumptions about stock market returns and debt levels, and these assumptions may not hold true. But it's also worth noting that the plan is not without potential benefits. If it works, it could provide a long-term solution to the Social Security crisis.
One thing that immediately stands out is the role of stocks in the plan. While the Cassidy-Kaine plan may not work, stocks could still play a role in reforming Social Security. Using tax hikes or equivalent benefit cuts to shore up the trust fund and allocating 40% of it to stocks would keep it solvent indefinitely in most simulations. This suggests that stocks could be a key part of any solution to the Social Security crisis.
In conclusion, the Cassidy-Kaine plan is a bold and ambitious proposal to save Social Security. While it faces significant challenges and risks, it also has the potential to provide a long-term solution to the crisis. The role of stocks in the plan is particularly interesting, and it suggests that stocks could be a key part of any solution to the Social Security crisis. But for now, it remains a risky gamble, and the future of Social Security is still very much in question.
