Social Security

Many, many interpretations of George W. Bush's proposals for reforming the Social Security system are floating around the Press and the Blogosphere. They all seem to be arguing points that are different than what I saw last night.

Number one: Dubya is proposing that benefits be paid on the basis of means-testing. If you paid in a lot then you probably don't need as much back from the existing system. This sends me this message: “Don't count on significant benefits when you retire.” I've maxed out the system for years. No one currently retired, or about to retire in the next few years would face this.

Number two: If you put aside money sent to SS into a private investment account then it cannot be used to support pay-as-you-go, nor can it be reduced by the above scheme, instead it can bring me an appropriate rate of return ranging from T-bills to aggressive stock plans with corresponding risk. You don't have to do this, but it's a good idea. No one currently retired, or about to retire in the next few years is affected by this. The reduction to pay-as-you-go is partially offset by the lowered future payout (SS does not pay out the benefits of personal accounts) and is also partially offset by the slanted payout of point number one.

So there it is. Number one eases the pressure on the system as the number of retirees per works increases. Number two also eases the pressure because the money put aside for personal accounts reduces the future payouts of the SS system.

People seem to be harping about point one or point two, but they're not looking at them together. I believe Dubya's insistence that the two be combined into a single system is the key here. It gets government out of the SS game a little bit, and partially reforms the system so it can remain solvent longer.

Imagine if they went a step further and just said, “the American people will pay off the benefits of those still in the system and from now on you are forced to invest 6% of your income and not collect the benefits of that investment until you reach the age of 70 or you die and the benefits are distributed to your heirs. In return, we will lower your taxable income by 6%.” That's even better, but it would hardly pass the bread and circuses crowd in DC.

Since the Democrats have no plan (hat tip to Blogs for Bush) and everyone's know this would be a problem, Dubya should be applauded for making it a key agenda item to fix this in his second term and making a serious try.

Let's we what trickles out of the debate.

Josh Poulson

Posted Friday, Apr 29 2005 09:21 AM

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