CEPR Releases Cost Projections for Bush and Gore Individual Account Proposals

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July 17, 2000

CEPR Releases Cost Projections for Bush and Gore  Individual Account Proposals

Both Plans Will Incur More Than $1 Trillion in Administrative Costs

For Immediate Release: July 17, 2000

WASHINGTON, DC-- The Center for Economic and Policy Research (CEPR) today released a new study which constructed projections for the administrative costs that workers would incur under the individual savings accounts proposed by Governor Bush and Vice-President Gore. The study found that both plans would lead to substantial administrative costs, which will be a large source of income to the financial industry.

The study projected that the administrative costs of the accounts proposed by Governor Bush will be between $250 and $360 billion over the plan's first twenty years. The cost for the first forty years will be between $1.2 and $1.8 trillion. These costs are entirely a net addition to the cost of administering the Social Security program at present, since the creation of the new accounts will not lead to any savings in the cost of administering the existing program.

The study projected that the administrative costs of the supplemental savings accounts proposed by Vice-President Gore will be between $390 and $560 billion over the first twenty years. Over a forty year period the administrative costs will be between $1.7 and $2.4 trillion.

Since the purpose of the accounts proposed by Vice-President Gore is to provide a voluntary second tier of savings, in addition to the guaranteed benefit provided by Social Security, some additional administrative costs must incurred. The study compares the projected cost of the decentralized system proposed the Vice-President with estimates of the cost of a centralized system of accounts, such as the Universal Savings Accounts proposed last year by President Clinton. The study projects that the unnecessary costs associated with the Gore proposal -- the difference between the cost of a decentralized system and a centralized system -- will be between $215 and $380 billion over twenty years. Over a forty year period the unnecessary costs would be between $850 and $1140 billion.

The study was done by Dean Baker, co-director of CEPR. Dr. Baker is co-author (with Mark Weisbrot) of Social Security: The Phony Crisis (University of Chicago Press, 2000).