Social Security Roulette
President Bush made a soaring speech about freedom at the State of the Union Address yesterday. He chided Saudi Arabia and Egypt to allow more freedom in their countries, and promised $350 million to help Palestinians. But when he turned to domestic affairs, Bush offered workers the freedom of the roulette wheel. Social Security is in trouble and cannot be depended upon, he said. To solve the problem we need to take about 1/3 of Social Security payments and have individuals invest them in private investment accounts. Bush foreclosed any form of taxes; he favored only reduction in benefits. Essentially, what he told us is that to prevent the loss of retiree benefits, let's reduce retiree benefits. If retirees want more let them gamble.
Bush spent a good deal of his speech scaring Americans with the terrible shape Social Security finances are:
Thirteen years from now, in 2018, Social Security will be paying out more than it takes in. And every year afterward will bring a new shortfall, bigger than the year before.... By the year 2042, the entire system would be exhausted and bankrupt.
Lies. Lies. Lies.
A new government study moved the 2018 date to 2020 and the 2042 date to 2052. Even in 2052 retirees would be receiving 3/4 of their proper amounts. The system would not be bankrupt.
It is more or less agreed that private accounts will do nothing to solve Social Security's financial problems. A reporter asked a "senior Administration official":
. . . am I right in assuming . . . that it would be fair to describe this as having the personal accounts by themselves, that it would be fair to describe this as having ... no effect whatsoever on the solvency issue?
The "senior Administration official" replied:
Thats a fair inference.
According to the Center of Budget and Policy Priorities:
Over the first ten years that the plan actually was in effect (2009-18), it would add more than $1 trillion to the debt. Over the next ten years (2019- 28), it would add over $3.5 trillion more to the debt. All told, the plan would add more than $4.5 trillion to the debt over its first 20 years.
And what does the retiree get? The Social Security Administration invests in Treasury bonds that currently yield about 3%. This means that investment accounts must earn more than 3% to achieve any kind of improvement. Since management fees will probably take away 2%, the retiree will wind up with 1%. Furthermore, the retiree does not get back all the money in his account. There is a thing called the "clawback" provision, which claws back some of the money to fund the system.
The chances of a citizen making more or even the same as now with private accounts are very low. The chances are good he or she will wind up with much less.
I hope you can follow Bush's logic. I'll describe it through a hypothetical conversation between me and Bush:
BUSH: Social Security is going bankrupt. It will be incapable of providing benefits.
ME: Why not increase taxes so more money is available?
BUSH: No way. Only private accounts.
ME: But private accounts will not affect the solvency of Social Security in any way.
BUSH: Privatization is a good deal for the individual.
ME: How will you make Social Security fiscally sound?
BUSH: Through benefit cuts.
ME: So to prevent benefit cuts you will execute benefit cuts. Is this your logic?
What a deal! Bush wants to remove 1/3 of Social Security, reduce benefits and make citizens participate in a roulette scheme to finance their old age.
It makes you wonder what Bush is truly after: Destroying Social Security
