Concerns Over Cassidy-Kaine Proposal to Invest in Social Security

A bipartisan plan proposed by Senators Bill Cassidy, a Louisiana Republican, and Tim Kaine, a Virginia Democrat, aims to address the long-term funding shortfalls of Social Security by borrowing approximately $1.5 trillion over the next decade. The borrowed funds would be invested in equities and other high-risk assets, with the intention of creating a new trust fund for Social Security. This plan is designed to allow the investments to grow untouched for 75 years, while the Treasury continues to borrow to cover ongoing benefit shortfalls.

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Alicia H. Munnell, a retirement policy expert and senior advisor at the Center for Retirement Research at Boston College, has raised significant concerns regarding the Cassidy-Kaine proposal. Munnell argues that the plan does not address the underlying funding imbalance of Social Security and instead introduces substantial financial risks for taxpayers. She emphasizes that the expected higher returns from equities merely offset the risks associated with increased borrowing, stating, “How can anyone argue for more borrowing when we already have $32 trillion in debt?”

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Munnell further critiques the proposal for generating no new revenue for Social Security beyond borrowed funds, making its success contingent on uncertain market performance. If returns fall short, taxpayers could be left responsible for losses.

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Proponents of the Cassidy-Kaine plan cite examples such as the Railroad Retirement Investment Trust and large public pension systems in Canada, arguing that equity investments can strengthen retirement programs. Cassidy and Kaine assert that their proposal aligns with strategies used by state and private pension plans across the country. They contend that the current Social Security Trust Fund, which is solely invested in low-yield U.S. government bonds, cannot sustain the program long-term without additional investment avenues.

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Senator Cassidy has stated, “If Congress doesn't act, millions will see their Social Security benefits cut when the program goes insolvent. Doing nothing is not an option.”

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Critics of the proposal, including financial experts like Drew Powers and Kevin Thompson, express skepticism about the wisdom of borrowing to invest in the stock market. Powers likens the plan to a household borrowing more money to cover existing debts, suggesting that a more prudent approach would involve increasing revenue and reducing benefits. Thompson warns that such borrowing could set a dangerous precedent, potentially leading to a federal backstop of asset prices and inflationary pressures.

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The Cassidy-Kaine proposal has garnered attention and support, including an endorsement from Larry Fink of BlackRock, but it has not yet been enacted into law. As discussions continue, the implications of the plan on Social Security's future and the broader economy remain a topic of significant debate among lawmakers and financial experts alike.

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• “The higher expected returns on equities merely compensate for the risk that will be borne by the taxpayers–a huge and risky financial maneuver with very little payoff,” — Alicia H. Munnell, Senior Advisor, Center for Retirement Research

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• “Borrowing money just to invest it in the stock market sets a dangerous precedent.” — Kevin Thompson, CEO of 9i Capital Group

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