STATEN ISLAND, N.Y., Sept. 17 — Research by two Wagner College business professors, Donald Crooks and Cathyann Tully, has generated a plan which they say will assure the interim solvency of the current Social Security system until it can be replaced with a better system.
The plan was mailed on Friday to President Barack Obama, and will be sent later this week to Vice President Joe Biden, Republican presidential nominee Mitt Romney, and GOP V.P. candidate Paul Ryan.
The plan was contained in a paper entitled “Social Security: Transparent Transition from Unsustainable Entitlement to Personal Economic Sustainability,” which Crooks and Tully presented last Monday at the Fall 2012 International Conference of the Academy of Business Research in Atlantic City, N.J.
In their paper, professors Crooks and Tully observe that, when Congress initially passed the Social Security Act, the average life expectancy of the U.S. worker was 61.7 years, while Social Security benefits did not kick in until age 65. Since then, the greatly increased life expectancy of Americans (78 years, in 2010) has put many more beneficiaries into the Social Security system. Some experts project that the system will go bankrupt by 2040 without some fundamental changes, the Wagner College business professors say.
Their proposal to stabilize the current Social Security system involves two changes:
- After the retirement age increases to 67 in 2027, index the retirement age to increases in life expectancy — a proposal straight from the Bowles-Simpson debt commission report of 2010.
- Eliminate the cap on Social Security taxes for top wage earners so that all income is taxed for the Social Security system. Currently, wages earned above $106,800 are not subject to Social Security taxes — and more than a fifth of all wage earners exceed the cap each year. In the first 5 years after eliminating the cap, Social Security revenues would grow by $472 billion, according to one source — enough to close the fund’s projected shortfall, according to the Social Security Administration.
Then, once the current system is stabilized, Crooks and Tully propose a transition from Social Security to something they call STRAP: the Secured Transparent Retirement Account Program. The key elements of the STRAP proposal are:
- Workers would own the account into which their STRAP taxes are paid — and, upon their death, the balance of their personal account could be passed along to their heirs.
- Congress could not raid STRAP funds to make up budget shortfalls (the famous “lockbox” concept).
- STRAP accounts would be managed by the federal government, not private investment firms.
- The funds in STRAP accounts for workers under the age of 50 would be invested in a diversified portfolio that would include stock-market index funds, AAA-rated corporate bonds and Treasury bills, letting their funds grow. Once an account owner reached age 50, however, and the security of their retirement account became critical, all their funds would be put into ultrasafe Treasury securities.
Donald Crooks is an associate professor in Wagner College’s Department of Business Administration, where he serves as director of business internships and the executive and accelerated MBA programs. He joined the academy in 2002 after spending nearly 35 years on Wall Street as a senior executive. His research includes financial markets, economics, strategic management and student learning assessment.
Cathyann Tully is an associate professor in Wagner College’s Department of Business Administration, where she is director of the traditional MBA program.
CLICK HERE to download a PDF copy of “Social Security: Transparent Transition from Unsustainable Entitlement to Personal Economic Sustainability”