SOCIAL SECURITY: Hot Air in Motown

www.progressreport.org

2/8/2005

SOCIAL SECURITY
Hot Air in Motown

President Bush heads to Detroit, MI
(http://www.freep.com/news/mich/social8e_20050208.htm) , today as part
of his aggressive marketing campaign to sell his deeply flawed -- and
very expensive -- Social Security plan. Don't hold your breath waiting
for the president to flesh out more details, however; the Detroit Free
Press reports "the traditional question and answer period after the
speech has been dropped for Bush's visit." (There may be good reason for
this: as the New York Times wrote this weekend, when it comes to the Bush
plan, "The more we learn, the worse it gets
(http://www.nytimes.com/2005/02/06/opinion/6sun1.html?oref=login) .")
Don't believe his hype. Here are the basics to keep in mind when
listening to his sales pitch.

IT'S A BENEFIT CUT: The private accounts President Bush wants to create
do nothing by themselves to reduce the shortfall
(http://www.cbpp.org/12-13-04socsec.htm) . A White House memo to
conservative allies which was leaked to the press last month even
"acknowledged that individual accounts themselves would do nothing
(http://www.cbpp.org/12-17-04socsec.htm) to close the projected Social
Security shortfall." What President Bush really is pushing are giant
benefit cuts, which he said during his State of the Union Address were
"on the table."

IT'S A TAX HIKE: President Bush has resisted raising the payroll tax to
pay for Social Security reform. But don't be fooled: his Social
Security plan is a tax hike. Here's how it works: President Bush is proposing
keeping the Social Security wage tax at the same level while reducing
benefits for future retirees. "By keeping the tax the same and reducing
future benefits," Newsweek reports, "Bush is like a candymaker that
cuts 46 percent off a chocolate bar but charges the same 75 cents for it.
In other words, his plan would effectively increase the Social
Security tax (http://www.msnbc.msn.com/id/6920720/site/newsweek) ."

IT INCREASES THE DEBT: The Bush plan also entails " significant new
federal borrowing (http://www.cbpp.org/2-2-05socsec4.htm) ." Vice
President Cheney this weekend admitted the government would have to borrow $754
billion over the next decade to set up the private accounts. (That's
low-balling the number -- most experts agree the first ten years of the
Bush tax plan would cost about $2 trillion
(http://www.cbpp.org/12-13-04socsec.htm) .) And after that? " Trillions
more after that
(http://www.nytimes.com/reuters/news/news-retirement-borrowing.html) ,''
he admitted. Large-scale borrowing carries a huge price for the middle
class. When the federal government runs up a large debt, that means
less money is available for average Americans to borrow when they want to
buy a house or a car or pay for college tuition. That smaller pool of
money available for loans translates into higher interest rates -- which
not only puts a squeeze on individual consumers but also slows the rate
of economic growth.
(http://www.globalpolicy.org/socecon/crisis/2003/0720why.htm) That
means, in the long run, fewer jobs, low wage growth and less money coming
into the federal Treasury.

THE MONEY'S NOT REALLY YOURS: President Bush is trying to capitalize on
the fact that Americans like to own things to sell his program to chop
Social Security benefits. The reality of his plan is a far cry from the
private ownership he's touting, however. For example, instead of
private plans that let Americans control their own investments, there are
tight restrictions on which conservative stocks and bonds the public will
be allowed to buy. And, the New York Times writes, "the more
restrictions there are, the harder it would be
(http://www.nytimes.com/2005/02/06/opinion/6sun1.html?oref=login) for
people to achieve the outsized returns the administration has generally
promoted to sell the public on private accounts." Also, Bush has played
up the fact that his accounts can be passed on to one's heirs. In
reality, unless you die before you retire, there's not going to be a lot to
bequeath. Retirees under the Bush plan will be required to use the
money in their accounts to buy the annuities that will then provide them
with their post-retirement income. The only money left to pass to heirs
is whatever is left over -- if anything -- from purchasing the
annuities. As Business Week puts it, "The problem isn't the restrictions on
ownership in the Bush plan. It's the false billing
(http://www.businessweek.com/bwdaily/dnflash/feb2005/nf2005028_8485_db045.htm)
, which is aimed at drumming up support from a skeptical public."

PRESIDENT BUSH EXPLAINS IT ALL: Confused about how President Bush's
Social Security privatization proposal works? Here is his explanation
(http://www.whitehouse.gov/news/releases/2005/02/20050204-13.html) :
"Because the -- all which is on the table begins to address the big cost
drivers. For example, how benefits are calculate, for example, is on the
table; whether or not benefits rise based upon wage increases or price
increases. There's a series of parts of the formula that are being
considered. And when you couple that, those different cost drivers,
affecting those -- changing those with personal accounts, the idea is to get
what has been promised more likely to be -- or closer delivered to what
has been promised. Does that make any sense to you? It's kind of
muddled." ( Thanks to Atrios (http://atrios.blogspot.com/) .)