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Working Paper

Social Security Privatization: A Simple Proposal

This paper proposes a Social Security reform for the United States that gradually, but ultimately fully, privatizes the system. This proposal follows the "no-harm, no-foul" principle in that it preserves the benefits of older generations and yet promises the same or higher retirement benefits for the young. As such it is both economically and politically feasible.The paper demonstrates that the transition to a privatized system can be financed without any additional taxation, including additional payroll taxation. Our approach is likely to improve U.S. national saving and work incentives compared to the current system. It also has advantages over other privatization proposals that recommend or may require additional taxation to finance the transition. The paper points out, however, that there is only a limited window of opportunity for implementing such a reform of the U.S. Social Security system.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Altig, David, and Jagadeesh Gokhale. 1997. “Social Security Privatization: A Simple Proposal.” Federal Reserve Bank of Cleveland, Working Paper No. 97-03.