2/6/05
Minneapolis Star-Tribune
Editorial: Young workers/The real victims of Bush's plan

There are so many deceptions to discuss in President Bush's plan for
dismantling Social Security, and many of them require complex
explanations to show just how deceptive they are. For now, let's take
on a couple. Please pay attention, young workers, because you get taken
to the cleaners by his plan.

The structure of Bush's private accounts isn't new; it was offered as
"Plan 2" by the 2004 President's Commission to Strengthen Social
Security, so it has been pretty well studied.

In addition to the private accounts, the Bush plan envisions future
benefit cuts for everyone. The line being peddled by the White House is
that private accounts would more than offset the cuts, leaving younger
people better off. That is simply not the case.

Using figures and economic assumptions from the Congressional Budget
Office, the Center on Budget and Policy Priorities, a highly regarded
think tank in Washington, did the calculations. Here's what they found
for first-year benefits for a worker now 25, of median income, who
retires at age 65:

- If nothing is done to Social Security, some time between 2042 and
2052 (opinions differ) there would not be enough revenue flowing into
the program from payroll taxes and its trust fund to cover the benefits
flowing out. If benefits then were cut just enough to make up the
difference, our hypothetical worker's annual benefits at retirement
would decline $800, from $20,500 to $19,700.

- If the Bush plan is enacted, our worker puts the maximum allowable
amount into a private account and the economy performs as the CBO
expects, our worker would get only $13,097. Who wants to sign up?

Bush also says you own your private account and that you can pass it on
to your heirs. Neither is true. In effect, the government loans you
part of your Social Security tax to invest in a private account. But
through a mechanism called "benefit offsets" that loan must be repaid
at retirement, with interest (starting at 3 percent but adjusted for
inflation).

What does that mean? Let's say you put $1,000 in your private account
annually for 40 years, and you get a pretty-good 4 percent annual
earnings on your investment. The value of your account would grow to
$99,800. But the government would deduct $78,700 from your Social
Security benefits, leaving you only $21,100, about 20 percent of what
your account had accrued. If you earn only 3 percent on your
investments, you don't come out a dime ahead from the private account,
but you still suffer cuts in your guaranteed benefits.

In addition, most of the money in your private account could be passed
to your heirs only if you die before you retire. The government would
convert most of the value of your account into an annuity and give it
to your heirs. If you live to retirement, the annuity goes to you, and
when you die, whether one day or 20 years after retirement, the
remaining value of the annuity reverts to Uncle Sam.

Younger workers should not be bamboozled. Something must be done to
ensure Social Security pays them the benefits they deserve, but the
system is in no danger of "bankruptcy." Bush's plan would make the
existing problem worse rather than better, and younger people would
bear the resulting financial pain.