Friday, February 04, 2005

If this is any clue

If this is any clue of how complicated and obfuscating Bush's plan is, it has taken the Washington Post two days and three stories to get the figures worked out for his privatization scheme. It really is that complicated. Here's a quick bit of math to explain how this system works.

If a worker set aside $1,000 a year for 43 years, and earned 4.6 percent annually on investments, the account would grow to $221,552 in today's dollars. That money would be the worker's upon retirement and would probably be paid out in increments of $15,952 a year, according to calculations by the Center for Budget and Policy Priorities, a liberal advocacy group. A White House calculation showed a smaller payout.

But guaranteed benefits over the worker's lifetime would be reduced by approximately $151,990 -- the amount the worker would have contributed to Social Security but instead contributed to his personal account, plus 3 percent interest above inflation. The remainder, $69,562, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system. That sum -- expressed as an annual payout -- would total $5,008.

But that benefit gain could be substantially smaller. The Congressional Budget Office, Capitol Hill's official scorekeeper, factors out stock market risks to assume a 3.3 percent rate of return and then subtracts 0.3 percent for expected administrative costs on the account. Under that scenario, the full amount in a worker's account would be reduced dollar for dollar from his Social Security checks, for a net gain of zero.

If investments earned less than 3 percent a year above inflation, a worker would do worse in total benefits than he would have done in the traditional system.

Remember that there is no guarantee that your investments will earn above 3%, either. Wen it comes to the market, there is no guarantee that you will earn anything.

There is also a bit of obfuscation from Scotty boy early on. He says "Individuals get to keep everything they set aside in personal accounts, plus the increased rate of return they'll realize on their investment," White House spokesman Scott McClellan said. "So to suggest otherwise is wrong. It is the individual's account, and the government cannot touch it." That is total bullshit because the government is the one administering the account and they'll cut the checks for the annuity. The government will be pretty much the only one to touch the account.

One of FDR's principles for what Social Security should be is that it remain simple. Bush has already lost the first round battling against him.

There are still a lot of unanswered questions, though. Like why do we want a regressive system that will allow rich people to get more money out of the system than those who work the hardest? Or what about survivor and disabled benefits? That is 30% of what is paid out by Social Security, where is that money going to come from? Bush won't say.


Post a Comment

<< Home