Jonathan Weisman and Mike Allen of the Washington Post preview the Bush Administration proposal for overhauling Social Security, starting with possible benefits cuts, and via "price indexing," dealing with transition costs. In case you missed that first part, we'll quote them directly: "cutting promised benefits by nearly a third in the coming decades, according to several Republicans close to the White House." LINK
"Under the proposal, the first-year benefits for retirees would be calculated using inflation rates rather than the rise in wages over a worker's lifetime. Because wages tend to rise considerably faster than inflation, the new formula would stunt the growth of benefits, slowly at first but more quickly by the middle of the century. The White House hopes that some, if not all, of those benefit cuts would be made up by gains in newly created personal investment accounts that would harness returns on stocks and bonds."
While some Democrats are already pronouncing themselves shocked/shocked (and while rising media star Trent Duffy will surely tell all who ask that "no decisions have been made"), no one should be fazed by this.
As we have nearly grown tired of saying, the WHOLE POINT OF NEARLY EVERY PLAN THAT INVOLVES PERSONAL SAVINGS ACCOUNTS IS TO LOWER THE GUARANTEED BENEFIT PORTION OF SOCIAL SECURITY FOR FUTURE RETIREES IN ORDER TO TAKE PRESSURE OFF OF THE TRUST FUND.
Supporters of such a plan (or "scheme" as the Brits say) believe that the combined benefit (guaranteed benefit+investment earnings from the personal accounts) will make up the difference, but there is, of course, no guarantee of that.
Paul Krugman channels his best Michael Kinsley-channeling-Paul Krugman as he prepares two weeks of columns to explain why Social Security partial privatization would "undermine Social Security" entirely. LINK
Today -- where's the crisis?
"When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past."
"So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are 'meaningless i.o.u.'s.' Readers who want a long-form debunking of this sophistry can read my recent article in the online journal The Economists' Voice (http://www.bepress.com/ev)."
Krugman's "Medicare and Medicaid are bigger problems" mantra is one that the White House is just waiting to bash back.
President Bush is urging Congress to make its first act this session approving aid to tsunami victims. LINK
The Los Angeles Times' Maura Reynolds takes a look at the big picture President Bush laid our for freshperson lawmakers yesterday, urging them to join him on "big issues" like the overhaul of Social Security, limiting medical liability and changing the "complicated mess" of a tax code. LINK