People who said President Bush was out to scrap Social Security, not save it, were prophetic. When Bush last week finally offered a few details about his plan to prevent Social Security’s future insolvency, as he calls it, the historic compact among American workers began to disappear before our eyes.
The president made it sound like a bonanza for young people and an even greater bargain for the working poor, but his rhetoric was just piffle. He misled in about every way that he could or else he did not grasp what the reformulation of benefits that he was embracing would actually do. Take your choice.
For the first time, Bush came out for the progressive indexing of benefits, which means better-off retirees would see dramatic cuts in their regular Social Security pensions — a 21 percent reduction for medium-income earners (those taking in $36,000 today) and 31 percent for those with incomes greater than $59,000. If the workers opted for private accounts, their regular benefits would be cut even further — by a total of 66 percent for medium earners and 87 percent for the higher-income retirees. One little matter that the president did not explain very well — not at all really — was that when people diverted payroll taxes into private accounts they would have their defined benefits cut again by one dollar for each dollar transferred into the account plus an interest charge of 3 percent.
But low-income workers would not have their benefits cut, unless they took one of the private account options the president offers. Bush made it sound like the poor would get higher benefits under his plan although they wouldn’t. John Tierney of The New York Times, an apologist for Bush, rhapsodized about it in a column reprinted in the Democrat-Gazette Tuesday. He praised Bush as a modern Robin Hood who wanted to “improve benefits for the poor” while cutting them for others. It was untrue. The poor just wouldn’t face the cuts others would.
What Bush proposes is a two-tiered system, the traditional Social Security program and separate stock accounts that workers could opt to put a big chunk of their payroll taxes in (once in, they would be stuck in it for life). It would be designed so that the stock accounts would look more and more appealing, that is if the markets should ever shake the anemia of the George W. Bush economy, while traditional Social Security would look more and more like a bad deal. People over time would want to opt out of it entirely, and politically Social Security’s social insurance functions could not be sustained.
Regular Social Security would look increasingly like a bad deal because the trust fund would bear the whole cost of paying for disabled workers and survivors of workers who died before retirement, which is a third of the Social Security payout. Social Security is a compact between workers of all classes and across generations that they will pay for each other’s unexpected life reverses.
I said the president misled. Here’s an example. He started his news conference by announcing, “As a matter of fairness I propose that future generations receive benefits equal to or greater than the benefits today’s seniors get.” He was talking about inflation-adjusted benefits.
Big deal! If absolutely nothing is done about Social Security, future generations will still get benefits equal to or greater than the benefits today’s seniors get. They won’t get what they’re promised now, but those benefits would be better than today’s benefits adjusted for inflation after the trust fund is exhausted, whether it is in 2041 or 2051.
Bush said his private accounts would be merely what members of Congress have provided for themselves. That was a lie.
“You’ve heard me say, I like to say this,” Bush said, “if it’s good enough for the Congress it is — it ought to be good enough for the workers, to give them that option.” But Congress and other federal employees can open private accounts in addition to Social Security, not in place of it. President Clinton and Democrats proposed that for other workers, but Bush rejects it. What was he thinking?
Finally, Bush said that for young workers who were worried about the risks of investing their Social Security money in stocks — if they’ve followed the market since he has been president they should be worried — his plan would allow them to invest all the money instead in U.S. treasury bonds so that they would be guaranteed never to lose money.
But they would be guaranteed to lose money that way. See, if they opt for private accounts their regular benefits would be reduced by a dollar for every dollar they put into private accounts, and they would be assessed an interest charge of 3 percent above the inflation rate. But 3 percent above inflation is all that Social Security actuaries project that treasury bonds will earn. Many analysts believe they will earn considerably less. So a worker investing in treasury bonds would be almost certain to lose his retirement benefits, not protect them.
Would you leave your family’s future in this man’s hands?