Reason and Radical

Piratization

That's Atrios's new word for what Shrub is proposing on Social Security. While Josh Marshall is doing yeoman's work on the issue, Atrios is on it like white on rice this morning. Some choice passages:

So, here's the basic Bush piratization plan:

Cuts in guaranteed benefits to make the system solvent in perpetuity without any tax increases.

A "voluntary" system of accounts that lets you divert up to 4 percentage points of your payroll taxes, subject to smaller cap in early years. Initial investment
choices would be based on the Thrift Savings Plan.

On top of guaranteed benefit cuts, there's a one for one benefit offset up to a 3 percent real rate of return, or the real rate of return on Treasury bonds (unclear if it's actually 3 percent or just expected to be 3 percent -- I assume the latter). In other words, your SS benefits are cut dollar for dollar up until you hit that magic limit then the extra is yours. Odd, I thought the trust fund wasn't real. Silly me. There's very little actual "ownership" here.

Opting out of the system essentially involves putting all of your money in bonds, insuring that you can't possibly exceed the actual rate of return on bonds).
Upon retirement, you're forced to buy an annuity such that your SS benefits plus the annuity purchased from your personal account at the minimum give you poverty line income. Unclear what happens if there isn't enough money to get you to the poverty line. The federal government would handle the annuities. The rest you can spend when you want.

If you retire and die the next day, as with any annuity the money reverts back to the issuer - in this case the feds. In other words, it isn't inheritable If the government underestimates life expectancy (the miracle cure appears), I imagine we'll hear talk about how those annuity contracts are "just IOUS" and the gov't can't afford to pay, blah blah blah.

And this from the Washington Post:

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.

posted by Leimodnu @ 11:12 AM