Thursday, April 28, 2005

Bush plans Private accounts, lower benefits for Social Security

Bush promises to keep pushing his reform of Social Security. I guess he was answering the unstated question of whether his poor poll results resulting from his 60-Days, 60-Stops Banboozlepalooza will make him quit or back off.

An important statement he made tonight is that people in the future will get at least as much as current beneificiaries. That means a benefit cut for future beneficiaries, since the benefits will begin replacing less and less of earnings lost because of retirement. That is to say, wages will increase but the benefits will remain at the level of today. Right now most retirees get about 40% of the wages they paid taxes on and the benefits rise as a result of increased wages. Then after retirement the wages are increased based on the Consumer Price Index (CPI) rather than the increase in wages. The average wage increase over time has historically been about twice the rate of the increase in the CPI.

He would also give lower benefits to higher income workers. That is, it would be "means-based." These two items would more than eliminate any projected deficit.

Of course, he still demands that private accounts be included, so that there is some actual ownership involved. What he doesn't say here is that this can only be done by borrowing more to pay benefits to make up for the amounts diverted to the private accounts. That means that his private accounts will add to the federal deficit that he and the Congress have already let get totally out of control.

The economic effects of that additional borrowing is very likely to slow our economy, either through higher interest rates or increased inflation - or both.

Means-testing Social Security will turn Social Security into a pure welfare program. That will guarantee political problems for maintaining benefit levels for beneficiaries in the future, as the original planners setting up Social Security recognized. When the only issue is keeping retirees out of poverty, it becomes easier to lower the measure of poverty than to increase the level of payments. The Texas Legislature proved that two years ago when it cut thousands of poor people and children off Medicaid just to save money and not raise taxes.

Bush offered nothing new, but he threw out the statement "We [the Republicans] are the party of ideas. Where are the Democratic Party ideas?" ABC TV reported that some Democratic person had already stated that private accounts were off the table. Period.

When he was asked if a plan was presented that guaranteed solvency of Social Security but did not include private accounts, would he accept that? Bush answered no. He wants private accounts even though they do nothing to improve the program! Then he promised people who would go for private accounts would do better than under the current system. Of course, he offered no guarantee of that, and the history in the United Kingdom and Chile has been that this simply hasn't happened for large numbers of people. The private accounts are pure unreasoned ideology on Bush's part no matter who gets hurt.

The Associated Press has a news report on the Press Conference already. MSNBC also has their report.


At 6:40 PM, Blogger Porkopolis said...

I agree that the President's proposal is a non-starter, but for different reasons:

Bush's plan is another step towards socialism. It would pile on to the already progressive benefit calculation formulas and the taxing of benfits for incomes over $32,000.

High income earners will soon figure out that Social Security is just a big wealth transfer, welfare system. For them, it may be better to proceed with the alternative Bush alluded to; the inevitable cuts in 2041.

The alternative would be a more honest, grown-up approach to resolving the problem. If only Bush had the courage to make the following his policy:

"My fellow Americans. Our Social Security System is a pyramid scheme. It's unsustainable in its current structure. The originally well intentioned program will start paying out more than it collects by 2017. Everyone has until about 2041 to get your finances in order. The program, if we stay on its current course, will be bankrupt around then.

At that time, these United States will not be in a position to deliver on the unreasonable promises of risk free retirement income. So, everyone is on notice that you are personally responsible for your own retirement. If you're not already setting aside money for this eventuality, I strongly suggest you start now.

Lest we be accused by future historians as 'wanting our cake and to eat it as well', I ask you to keep in mind that continuing to work into your latter years is also a viable option. We're all benefitting from medical developments that allow us to live well beyond the age of 65; the age at which the original designers of Social Security thought many of us would already be dead."


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