Hunting The Muse

Breaking News: Social Security Proposal Is Confusing

Well, the Washington Post created something of a brouhaha by screwing up in their original description of Bush's privatization plan.

Their first description of the plan was basically that of a system where we would voluntarily choose to invest a third of a sum of money and let the government then steal the principle in exchange for us keeping the interest. Bizarre. Way to go, Washington Post.

I'm pretty embarrassed by all the liberal bloggers that swallowed that mischaracterization hook, line, and sinker.

The real plan is that we'd be diverting payroll taxes and Social Security would basically be cut by the amount you'd divert. You'd invest the amount you diverted. The only way you'd get a benefit from the diversion is if your investments outperformed what the growth of your social security benefits would have made had you just left it the hell alone.

(Ignore this quoted part, I was confused when I wrote it):

And here's another way in which people are screwing up in describing it.

They're conflating the interest rate on the bonds with what the growth on social security benefit is.

From what I understand, the benefits that we receive are basically what we put in, adjusted for wage growth. This is leaving aside questions of benefit caps.

But everyone's talking about comparing it to the 3.3% projected growth rate of the bonds in the trust fund. That's completely different. Who cares about the growth rate of the trust fund? Doesn't that only affect when the trust fund goes into deficit? How does that even have an impact on the formula for what one individual would receive?

It may be that we're supposed to be comparing it to a different percentage entirely; like that of the annualized wage growth.

That might be much harder for the privatized investments to outperform.

Bush might be sneaking something through here, by saying that the benefit formula would be changed to grow with inflation rather than wage growth.

Then what he can do is compare the projected performance of privatized money, with the projected benefit growth under the inflation adjustment. Which would be pretty shrewd, as far as con jobs go.

The real comparison would be to compare the projected performance of privatized money to the projected benefit growth as the system is now.

Anyway, I am not certain about this. I just know it strikes me as really odd to mix in the trust fund's projected growth with the matter of how one's benefit would grow. That's not how it works, is it?

Update: Ah, I think I get it: The formulas would still be applied unchanged. So, whether you divert 4% or not, your raw check amount would still be considered the same. But then if you diverted any money, they decrease the the benefit by that (proportional) amount, plus the interest the trust fund would have made. So it's that interest rate you have to outperform.

Now, I'm curious how many people have outperformed the Social Security trust fund's interest rate over the last ten years? I certainly haven't.