Sens. Bill Cassidy (R-LA) and Tim Kaine (D-VA) have floated a proposal to create a $1.5 trillion investment fund aimed at extending the solvency of Social Security. The five-year fund would grow until it holds enough money to keep Social Security from running out of money by the projected 2033 date, the Senators say.

The Cassidy-Kaine proposal is not yet in legislative form (i.e., there is as yet no statutory language). The Senators say the idea must be socialized among lawmakers before it makes sense to draft it. So, for now, the proposal involves only principals and general elements. They include:

• Five years of $30 billion/year federal investment into the fund
• The money would be invested in stocks, bonds, and other investments, and held in escrow for 70 years
• All dividends and other earnings would be reinvested into the fund and ultimately used to pay Social Security benefits

Sen. Cassidy said that even though the plan would involve borrowing $70 billion/year for five years, it would not increase the deficit because the money would be held in a fund that would earn enough interest to cover the cost of borrowing. He explained this as follows: “The reason is that if you have money in an escrow account, you could always just empty the escrow account and pay off the Treasuries required to do the initial funding,” he said. “And so, even though we’re borrowing that money, it does not increase our nation’s indebtedness and the investment income will exceed the interest that accumulates on the money borrowed.”

Sen. Cassidy estimated the plan could “generate at least 70 percent of the borrowing required to pay the benefits over the next seven decades.”

Both Sen. Cassidy and Sen. Kaine concede that this plan is but one step towards restoring Social Security solvency. Sen. Kaine called it “a really important part of the solution. It probably is not the entire solution, but it can be a really important ingredient that no one was really thinking about. And then that makes the path towards solvency a little bit easier.”

So, still on the table are potential increases in Social Security taxes (particularly with respect to the wage base), and modifications to benefit formulas.

Prospects: Not surprisingly, there are those who are critical of the Cassidy-Kaine proposal. They say the $30 billion/year in additional borrowing would raise interest rates and slow economic growth. Still, there are lawmakers from both sides of the aisle who are intrigued by the idea. There is consensus that the sooner Congress addresses the problem of looming Social Security insolvency, the less painful the solution will be—but no one expects the issue to rise to the top of Congress’ priority list any time soon. But this bipartisan idea is now in play and will be over the long run.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at dboyle@naifa.org; or Jayne Fitzgerald – Director – Government Relations, at jfitzgerald@naifa.org; or Mike Hedge – Senior Director – Government Relations, at mhedge@naifa.org.