February 2005
Implementation Costs:
This plan will be largely self-financing, and adding inflation-indexed returns will not change that fact. The maximum possible annual return is 8.0%, and that rate will only apply if the annual rate of inflation is 3.5% or higher. The American taxpayers are currently paying an average annual interest rate of 8.001% on over $539 billion worth of Treasury Bonds regardless of the current inflation rate. Therefore, this plan could finance $539 billion in government debt at rates that will be no higher than taxpayers are currently paying. In fact, if inflation is less than 3.5% per year, the American taxpayers will actually save money with this plan. While ownership of these higher yielding securities is currently concentrated among the wealthy, now all Americans will have equal access to these investments through this program.
As previously noted, the Social Security trust fund is listed under the category of Government Account Series Nonmarketable Debt in the national debt report. It is given the title of “Federal Old-Age and Survivors Insurance Trust Fund,” and amounts to over $1,515,893,000,000 as of January 31, 2005. The current average interest rate for Government Account Series Nonmarketable Debt is 5.327%. Therefore, this plan could finance over $1.5 trillion in debt at no additional expense to our taxpayers if the average rate of inflation is .827% or less. This is because the taxpayers are currently paying 5.327% interest on this debt, and that interest rate is .827% more than the base rate of 4.5% upon which this plan relies.
If inflation rose to a level of 3.5% or more, this plan would return 8.0%, and the taxpayers would need to make an additional $40 billion in interest payments on the trust fund debt. However, the interest payments on the national debt are currently lost to foreign governments and the wealthy; this plan would allow those interest payments to actually benefit working class Americans. Furthermore, the Social Security Administration estimates that it will cost at least $2.3 trillion over 75 years in order to implement Model 2 of the President’s plan for privatized accounts, and that amounts to a annual cost of over $30 billion. Even under this worst-case scenario, the PACT America plan is still a very cost effective means of Social Security reform.
Social Security faces a projected shortfall of over $3.175 trillion over the next 75 years. This program would contain assets of over $2 trillion simply by financing the repayment of the Social Security trust fund and assuming the debt held through 30-Year Treasury Bonds when those now discontinued bonds expire. Since interest is reinvested in the program, this $2 trillion will compound to over $3.175 trillion in just over 10 years. Therefore, the PACT America program will be able achieve the partial advance funding that Social Security will require in future years.
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