[Homestead] SS details slowly emerging
genegerue at ruralize.com
Sun Feb 6 08:41:39 EST 2005
I noted awhile back that there were precious few details from the Bush
administration about the SS privatization plan. The details are finally
emerging and with each new devilish detail, the plan's weaknesses are
revealed. Health care is a much bigger fiscal problem than social security
but this administration has yet to find the political advantage or will to
address Medicare financial realities. A while back I found a site that
enumerated campaign contributions. If one wishes to know what agenda will
be pushed by this president, one has only to note the business interests of
the biggest contributors.
Read the Fine Print
Published: February 6, 2005
The more we learn, the worse it gets.
Last Wednesday, as President Bush prepped for his State of the Union
address, a White House official gave reporters a background briefing on
some of the details of Mr. Bush's Social Security privatization plan.
Almost point for point, whatever the president said that sounded good
sounded bad when the details were filled in.
For instance, Mr. Bush said, "Personal accounts are a better deal," because
"your money will grow, over time, at a greater rate than anything the
current system can deliver." But the privatized system actually contains
hidden costs that could leave retirees with less. Your Social Security
benefit would be reduced, dollar for dollar, by the amount of money you
deposit into your private account and an additional charge amounting to 3
percent plus the rate of inflation. All the money that is drained off would
presumably go to pay for the enormous upfront government borrowing - $4.5
trillion over the next 20 years - that privatization would require.
That means people whose private accounts steadily earned three percentage
points over inflation throughout their working lives would wind up with
exactly what they would have gotten if Social Security remained untouched.
Anyone who earned less than that would end up with less than is offered by
the current system. When asked what would happen to the people who would
not have enough income to avoid poverty, the administration official said,
"I'm not sure if I'm understanding your question."
The benefit cut is only the beginning. There is still the problem of
strengthening Social Security's finances. On its own, establishing private
accounts does nothing to solve the long-term shortfall in the system. The
president alluded to this fact when he said, "We must pass reforms that
solve the financial problems of Social Security." He dutifully listed
various benefit cuts that would do the trick, without taking the
politically risky step of endorsing any of them.
Neither the president nor his aides have been willing to acknowledge the
extent of benefit cuts that would be needed. And no wonder: All in all,
they would leave the average worker with a government benefit worth only
about 10 percent of his or her preretirement earnings. (Currently, Social
Security replaces about 35 percent, on average.)
Various proposals to strengthen the current system's solvency via modest
tax increases and benefit cuts - without resorting to costly private
accounts - could guarantee a government benefit that replaces about 30
percent of preretirement income on average. But for all his talk about "an
open, candid review of the options," the president refuses to consider any
plan that excludes private accounts or includes tax increases, no matter
how small. His stance makes severe benefit cuts unavoidable.
Even the feel-good tidbits in the president's speech really fail to stand
up to close examination. Mr. Bush assured listeners that the government
would prevent people from making bad decisions by restricting their
investments to a conservative mix of stocks and bonds. But the more
restrictions there are, the harder it would be for people to achieve the
outsized returns that the administration has generally promoted to sell the
public on private accounts.
And the much-touted promise that the private accounts could be passed on to
one's heirs, as it turns out, is also less than it seems. That works
entirely only if you die before you retire. Under a scheme that is going to
take a while for the public to digest, the White House wants to require new
retirees to use their private accounts to buy annuities large enough to
keep them above the poverty line for the rest of their lives. The most they
could leave to heirs, then, would be what is left over after the annuities
Mr. Bush is expending tremendous energy to sell his plan - daily impairing
his own credibility and shredding whatever confidence remains in the
country's fiscal outlook. Members of Congress would do him - and their
constituents - a favor by reining him in and moving on to more pressing
More information about the Homestead