Wednesday :: Feb 2, 2005

Think You'll See Your Gains From Privatization? Think Again

by Steve

The Bush bait and switch on his privatization plan reached its zenith today when an unnamed administration official revealed that workers who choose the privatization option will never actually get to see their earnings because those earnings will be going to the government instead. It turns out that under the Bush plan, those who choose to privatize will, upon retirement, only see any earnings in excess of the rate of return on Treasury bills as a supplement to a reduced Social Security benefit.

I am not making this up.

Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system. The mechanism, detailed by a senior administration official before President Bush's State of the Union address, would hold down the cost of Bush's plan to introduce personal accounts to the Social Security system. But it could come as a surprise to lawmakers and voters who have thought of these accounts as akin to an individual retirement account or a 401(k) that they could use fully upon retirement.
Under the proposal, workers could invest as much as 4 percent of their wages subject to Social Security taxation in a limited assortment of stock, bond and mixed-investment funds. But the government would keep and administer that money. Upon retirement, workers would then be given any money that exceeded inflation-adjusted gains over 3 percent. That money would augment a guaranteed Social Security benefit that would be reduced by a still-undetermined amount from the currently promised benefit. The administration official explained that the "benefit offset" merely ensures that those who choose personal accounts are not given an unfair advantage over the traditional system.

WTF? Wasn’t that the selling point behind privatization in the first place; that you could do better with private accounts than you could by relying upon the government? Now we are being told that you will never touch your own earnings until you retire and then those earnings over and above the standard benefit are all that you will then see? What ever happened to the "ownership society?"

But critics of the Bush plan said the proposed "claw back" renders the whole idea of "personal retirement accounts" virtually meaningless. Indeed, the system would ultimately look something like a proposal made by President Bill Clinton, in which the government would have invested Social Security taxes in the stock market.

"They hope people will think they will take on these accounts and after 40 years, they'll have this huge windfall, but that won't happen," said Dean Baker, co-director of the liberal Center for Economic and Policy Research. "I think they're trying to confuse people."

Stephen Moore, a conservative supporter of Bush's Social Security effort, said the mechanism would undermine the president's notion of an "ownership society."

No shit. In essence, what the administration is admitting with its proposal is that the private accounts aren’t about wealth creation or better returns, but in fact are all about letting the federal government cut costs and go cheap on Social Security.

Well, this is like the captain shooting a cannon into the hull of his own ship. And if Steve Moore is turning against it, then the plan is doomed.

Steve :: 10:54 PM :: Comments (32) :: Digg It!