Bush trying to pass Social Security private accounts via Budget Bill

http://www.msnbc.msn.com/id/11235990/site/newsweek/from/RSS

Sleight of Hand
Bush buried detailed Social Security privatization proposals in his budget. Can the surprise move jump-start bipartisan reform?

By Allan Sloan
Updated: 12:09 p.m. ET Feb. 8, 2006


Feb. 8, 2006 - <snip>Duffy said privatization costs were included in the midyear budget update that the Office of Management and Budget released last July 30, so it was logical for them to be in the 2007 budget proposals. But I sure didn't see this coming—and I wonder how many people outside of the White House did.

Nevertheless, it's here. Unlike Bush's generalized privatization talk of last year, we're now talking detailed numbers. On page 321 of the budget proposal, you see the privatization costs: $24.182 billion in fiscal 2010, $57.429 billion in fiscal 2011 and another $630.533 billion for the five years after that, for a seven-year total of $712.144 billion.

In the first year of private accounts, people would be allowed to divert up to 4 percent of their wages covered by Social Security into what Bush called "voluntary private accounts." The maximum contribution to such accounts would start at $1,100 annually and rise by $100 a year through 2016.

It's not clear how big a reduction in the basic benefit Social Security recipients would have to take in return for being able to set up these accounts, or precisely how the accounts would work.<snip>

I caught this the other day in the Post and sent it on to my email list. It hasn't been brought out here that I know of, or certainly not in the corporate media. Has anyone posted the original story from the post here, do you know?
I am so sick of this maladministration and their dirty tricks. It's worse than watching a bunch of uncivilized preschool children. It's just one damn thing after another!

http://www.washingtonpost.com/wp-dyn/content/article/2006/02/07/AR2006020701865_pf.html

It was surprising to see that Bush put his plan for private accounts in the Budget after having made no mention of it in the State of the Union. Following is a description of the plan from page 286 of the Budget (online at
http://a257.g.akamaitech.net/7/257/2422/06feb20061000/www.gpoaccess.gov/usbudget/fy07/pdf/budget/ssa.pdf ):

The President has proposed reforms to address the system’s long-term financial shortfall while making Social Security a better deal for today’s young workers. Under the President’s approach, Social Security would include voluntary personal accounts funded by a portion of workers’ payroll taxes. The 2007 President’s Budget includes the estimated impact from the creation of personal accounts. The accounts will be funded through the Social Security payroll tax. In the first year of the accounts, contributions will be capped at four percent of Social Security taxable earnings, up to a $1,100 limit in 2010, increasing by $100 each year through 2016. The President has also embraced the idea of indexing the future benefits of the highest wage workers to inflation while providing for a higher rate of benefit growth for lower-wage workers. This measure would significantly contribute to the solvency of the system. By adjusting the way benefits are calculated, progressive indexing would eliminate nearly 70 percent of annual cash shortfalls by the end of the Social Security Trustees’ long-range (75 year) valuation period, trending towards greater improvement thereafter. Because progressive indexing would index benefits for lower-wage workers to wage growth, which generally grows faster than inflation, benefits would grow faster than the poverty level. This will keep a greater portion of future seniors out of poverty than today.

Some form of progressive indexing may actually be a good idea since the current full indexing by wages is likely not sustainable. However, I fear that this proposal is being used as cover for the personal accounts and would be excised from any final bill.

In any case, it's hard to think of any justification for personal accounts. First of all, it would worsen the cash shortfalls in the short term as the government would have to replace the revenues that are diverted into private accounts. Even in the long term, it could make the problem worse, especially if the government ends up bailing out the losers. This would very likely happen after a widespread negative event like a severe market crash. Finally, the availability of personal accounts is not the major problem that our retirement system is facing. Every year, more and more companies shift their retirement plans from defined-benefit plans (like pensions) to defined-contribution plans (like 401k's). Social Security is the only widespread defined-benefit program left. We should be strengthening this characteristic of it, not turning it into another defined-contribution plan.

I suspect some of the problem is caused by having relatively rich people designing a retirement system for the poor and middle-class. A rich person can prepare for their retirement by simply saving a ton of money. That will prepare them for any eventuality, be it high inflation or living to be 100. A poor or middle-class person, however, cannot afford to save for every possible outcome. They need to purchase some sort of insurance or annuity. Personal accounts provide neither of these. They simply provide another vehicle by which the rich can "save a ton of money" by effectively allowing them to pull a portion of their contributions out of the Social Security system.

I thought you might be interested.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=364&topic_id=703842&mesg_id=703842