It Ain't Over 'til It's Over
If you can’t get enough to read on Social Security reform, and that’s hard to imagine if you drop by here with any regularity, here are six stories on the GOP plan for Social Security (WP, NY Times, CNN, MSNBC, AP, Reuters). They are fairly similar in terms of notable points, so here’s the story from the Washington Post. This proposal is nothing new, it diverts money into private accounts and reduces traditional benefits. A proposal that has private accounts for only ten years, changes solvency estimates by only two years, has a maximum payout per person of $588, has clawback and administrative expenses large enough to cause negative returns by some estimates, reduces benefits by the earnings on the private accounts, and does not address the large budgetary consequences it brings about cannot possibly be a serious proposal. This is an attempt to open the door and build momentum towards something, anything, with the hope of reshaping and redirecting it once it begins to move forward. Republican strategies and justifications shift with the wind, but for now generating movement, or the appearance of pushing towards movement, and pressure on Democrats to compromise is the game. As the shells begin to move around quicker and quicker in coming weeks, do your best to keep you eye on the ball:
House GOP Offers Plan For Social Security - Bush's Private Accounts Would Be Scaled Back, By Mike Allen and Jonathan Weisman, Washington Post: … House Republican leaders yesterday embraced a new approach to Social Security restructuring that would add individual investment accounts to the program, but on a much smaller scale than the Bush administration favors. The new accounts would be financed by the Social Security surplus … Republicans hope the new proposal will shift the debate away from future benefit cuts … to ending what they call the "raid" on the current Social Security surplus. But the plan, unlike Bush's, would do nothing to remedy the New Deal-era program's long-term fiscal problems. An aide to House Speaker J. Dennis Hastert (R-Ill.) called the bill "a great start," and House Majority Whip Roy Blunt (R-Mo.) called it "an excellent first step." … Rep. Eric I. Cantor (R-Va.) … called it "a breakthrough day," and Sen. John E. Sununu (R-N.H.) said the announcement was a victory ... But Democrats were vociferous in their condemnation, and some Republicans in the Senate remained doubtful. … Although the new plan is considerably less broad than Bush's approach, it would still fundamentally change the way the Social Security system operates. This year, Social Security will bring in $69 billion more in taxes than the system pays in benefits. Congress will borrow that money to fund other programs and then send $69 billion worth of Treasury bonds to the Social Security Administration. Those bonds would be cashed to finance benefits once the system slipped into deficit. Under the new proposal, those bonds would go to private investment accounts that would be opened for workers unless they chose not to participate. …. The balance of the accounts, plus interest, would eventually be subtracted from a retiree's traditional Social Security benefit. The system, as proposed, would operate only as long as Social Security ran a cash surplus -- or just more than a decade. ... A nearly identical bill will be introduced in the Senate today. Republican strategists said the new plan is a way to pressure Democrats to negotiate, and to portray movement. … But critics say there is not enough money to make the plan viable. About 130 million Americans who pay into Social Security and are under 55 would be entitled to personal accounts. Excluding interest owed on borrowed Social Security funds, the cash surplus from Social Security taxes this year will leave enough for an average of $434 available for each account. The Social Security Administration projects that, at its height in 2008, the cash surplus will reach $97 billion, … leaving an average of $588 each. But that cash surplus would decline rapidly to zero after a decade. By 2016, all that would remain is $40 per account. "You'd launch a proposal without any means of perpetuating the funding," said Robert L. Bixby, executive director of the Concord Coalition, a budget watchdog group. House Republicans said the plan would extend solvency from 2041 to 2043 … If the size of the accounts would be small, the cost to the government would not, said Jason Furman, an economist at the liberal Center on Budget and Policy Priorities. The proposal would add $600 billion to the federal debt over the next decade, assuming that two-thirds of eligible workers take accounts. The plan would not cut benefits, and the cost to taxpayers of administering minuscule accounts could be huge. Furman said the plan would push the program to insolvency two years faster than doing nothing, because of administrative costs and the amount that was inherited. "This is the worst of all worlds," he said. "It has all the problems of any private accounts proposal with none of the benefits for solvency."
Posted by Mark Thoma on Thursday, June 23, 2005 at 02:25 AM in Economics, Social Security |
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