Also, in exchange for the prospect of higher returns, the Social Security trust fund would have to take on greater risk. The possible extension of the trust fund’s solvency resulting from any stock investment scenario would be significantly shorter if the future stock returns are lower than the historical average of 7 percent after inflation.Moreover, if the return on stocks over the next 20 or 30 years averages less than the expected return on Treasury securities, the trust fund would be exhausted sooner than in 2029, exacerbating Social Security’s long-term financial imbalance. With government stock ownership, the risk and potential returns would be shared collectively by workers and beneficiaries. Effects of Government Stock Investments on the Federal Budget and National Saving

In the short term, under current budget scoring rules, government stock investing would increase reported budget deficits or decrease budget surpluses because stock purchases would be treated as outlays.9, 10 Each dollar invested in stocks is a dollar no longer available to the Treasury to finance other government spending or reduce debt held by the public. Implementation Issues Associated With Government Stock Investing

Government stock ownership, and to a lesser extent government management of individual accounts, would raise certain implementation issues, the most significant of which are stock selection and shareholder voting rights. Conceptually, these issues do not pose major obstacles. An indexing approach could reduce (1) the costs of selecting and managing a stock portfolio, (2) the exposure to some investment risks, and (3) the likelihood of the government controlling the corporate affairs of individual companies. I would like to conclude with four key observations about stock investing through the government and through individual accounts. Second, simply shifting assets from the trust fund into the stock market, either through the government or individual accounts, does not by itself increase national saving. Stock investing could indirectly prompt actions to raise saving by revealing the size of federal deficits excluding Social Security’s temporary surpluses. Fourth, critics of government stock investing have cited its potential to increase government influence over the private sector. Related GAO Products

Social Security Financing: Implications of Government Stock Investing for the Trust Fund, the Federal Budget, and the Economy (GAO/AIMD/HEHS-98-74, April 22, 1998).
Why GAO Did This Study

Pursuant to a congressional request, GAO discussed its work on the government stock investing option, focusing on: (1) the implications of government stock investing for the Social Security Trust Fund; (2) the impact of stock investing on the federal budget and national saving; and (3) implementation issues related to selecting and managing a stock portfolio that could affect the degree of government involvement in corporate affairs.

What GAO Found

GAO noted that: (1) government stock investing is a complex proposal that has potential consequences for Social Security, the federal budget, and national saving; (2) it also differs in key ways from proposals to establish individual accounts; (3) for the Social Security Trust Fund, government stock offers the prospect of higher returns but, by itself, is unlikely to solve the program's long-term financial imbalance, and it would be accompanied by greater risk; (4) the key distinction between stock investing through the government and through individual accounts is that, under government stock investing, the risks and returns would be shared collectively through the government rather than borne individually; (5) more generally, individual accounts proposals would alter Social Security's current structure and scale back the income redistribution aspect of the current program; (6) from a budget perspective, shifting a portion of trust fund assets into the stock market would raise deficits or diminish surpluses in the short term but would not significantly affect national saving; (7) while government stock investing by itself has no direct effect on saving, it indirectly could prompt actions to raise savings by revealing the size of federal deficits excluding Social Security's temporary surpluses; (8) implementing a government stock investing proposal would raise issues about stock selection, administrative costs, and shareholder voting rights that, conceptually, do not pose major obstacles; and (9) however, some of these issues could raise concerns about increased government influence over the private sector.