A bipartisan Senate proposal led by Senators Bill Cassidy (R-La.) and Tim Kaine (D-Va.) seeks to address Social Security’s looming insolvency by borrowing $26.6 trillion and investing $1.5 trillion in the stock market. The plan aims to maintain current benefits without raising taxes or cutting payouts, but experts caution that the strategy carries substantial risks.

The Plan’s Mechanics

The Cassidy-Kaine proposal hinges on borrowing $1.5 trillion to create an investment fund comprised of stocks and other risk assets, projected to grow over 75 years. Simultaneously, an additional $25.1 trillion in borrowing would be required to cover the gap between Social Security’s revenue and benefits during that period. The goal is to use stock market returns to pay down the accumulated debt.

‘After incorporating the volatility in equity returns, however, the results show that the gamble does not always pay off.’ - Boston College’s Center for Retirement Research

Expert Skepticism

Boston College’s Center for Retirement Research conducted simulations using historical stock market returns of 6.5% annually after inflation. Even under these assumptions, the investment fund failed to cover the additional debt 64% of the time. More conservative projections, such as a 4% annual return, increase the failure rate to 83%.

Experts also warn that the massive borrowing required could impact interest rates and market performance, further reducing the likelihood of success. With total U.S. debt already at $39 trillion and publicly held debt equaling 100% of GDP, the proposal risks exacerbating the nation’s fiscal challenges.

Alternative Solutions

The Boston College report suggests that combining modest tax increases or benefit cuts with allocating 40% of the Social Security trust fund to stocks could ensure solvency indefinitely. This approach would avoid the risks associated with large-scale borrowing while still leveraging the stock market’s potential.

Previous attempts to tie Social Security to market performance, including proposals during the Clinton administration and Senator Ted Cruz’s ‘Trump accounts’ initiative, have faced similar criticisms about volatility and sustainability.