February 5, 2005

NUTS & BOLTS:

Memo Gives New Details on Workings of Bush's Social Security Plan (DAVID E. ROSENBAUM, 2/05/05, NY Times)

Under the plan President Bush outlined Wednesday night in his State of the Union Message, retirees' traditional Social Security benefits would be reduced if they had diverted some of their tax money into private investment accounts, according to a memorandum that the chief actuary of the Social Security system sent to the White House on the day of the president's address.

Mr. Bush's plan would permit workers to put up to 4 percent of their wages into personal accounts, instead of having that money go into the Social Security system. At first, there would be a $1,000 annual limit on investments, but that would be phased out.

The Social Security tax is now 12.4 percent, divided equally between employees and employers. So if a worker put the full 4 percent into a private account, 8.4 percent of wages would go to the Social Security system.

At retirement, workers who had diverted part of their taxes would have two sources of income: a check from the government based on the taxes they had paid into the system, and the money accumulated in their investment accounts. To be better off than retirees who had stayed with the guaranteed benefits, an investor's private account would have had to earn more than three percentage points above the rate of inflation.

In his speech to the nation, the president never said, although it has always been implicit, that workers' retirement benefits from the government would be lowered if they chose to put tax money into personal accounts. A senior White House official told reporters on Wednesday that there would be such a reduction in benefits, but he did not explain how it would work.

Now these details of the memorandum from the Social Security actuary, Stephen C. Goss, to Charles P. Blahous, the main White House staff expert on the program, are circulating among policy experts:


Posted by Orrin Judd at February 5, 2005 5:59 AM
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