Chris's Rants

Thursday, February 03, 2005

Ah, the legerdemain continues

The WaPo has the details of the Bush plan to "save" the Sosul Security system: Participants Would Forfeit Part of Accounts' Profits.
In effect, the accounts would work more like a loan from the government, to be paid back upon retirement at an inflation-adjusted 3 percent interest rate -- the interest the money would have earned if it had been invested in Treasury bonds, said Peter R. Orszag, a Social Security analyst at the Brookings Institution and a former Clinton White House economist.

"I believe you should be able to set aside part of that money in your own retirement account so you can build a nest egg for your own future," Bush said in his speech.

Orszag retorted: "It's not a nest egg. It's a loan."

Under the system, the gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return above inflation. The Congressional Budget Office, Capitol Hill's official scorekeeper, assumes 3.3 percent gains.

If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars, but the government would keep $78,700 -- or about 80 percent of the account. The remainder, $21,100, would be the worker's.

With a 4.6 percent average gain over inflation, the government keeps more than 70 percent. With the CBO's 3.3 percent rate, the worker is left with nothing but the guaranteed benefit.
There you have it. It's just a scheme to cut Social Security benefits disguised as "personal accounts". It's not a 401K-like account, where you get to keep both what you invest and what you earn on that investment. You get to keep only the excess gains over an inflation adjusted 3 percent. The administrations wildly optimistic projections have you keeping roughly $21K after "investing" $1,000 per year for 40 years. The CBO's projections are for a more realistic average of 3.3 percent, which means you get diddly-squat over and above the guaranteed (reduced because you opted into the "personal account" program) benefit.

What a farce. Unfortunately, the ill-informed and disinterested public will be subjected to the administration's full-bore marketing campaign *cough*lies*cough* and FoxNews's cheerleading squad telling them how wonderful Dear Leader's plan to "save" Social Security is, and how terrible the Democrats are for opposing it. I suspect that unless there is rock-solid opposition from the Democrats and Josh Marshall's Conscious Caucus of Republicans, that the administration will be successful in its goal to eviscerate Social Security.


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