[Homestead] SS details slowly emerging

Gene GeRue 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 
are purchased.

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 
matters.

http://www.nytimes.com/2005/02/06/opinion/6sun1.html?oref=login





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