Wednesday, February 02, 2005

All Your Risk Are Belong To You

So, here's the basic Bush piratization plan:

Cuts in guaranteed benefits to make the system solvent in perpetuity without any tax increases.

A "voluntary" system of accounts that lets you divert up to 4 percentage points of your payroll taxes, subject to smaller cap in early years. Initial investment choices would be based on the Thrift Savings Plan.

On top of guaranteed benefit cuts, there's a one for one benefit offset up to a 3 percent real rate of return, or the real rate of return on Treasury bonds (unclear if it's actually 3 percent or just expected to be 3 percent -- I assume the latter). In other words, your SS benefits are cut dollar for dollar up until you hit that magic limit then the extra is yours. Odd, I thought the trust fund wasn't real. Silly me. There's very little actual "ownership" here.

Opting out of the system essentially involves putting all of your money in bonds, insuring that you can't possibly exceed the actual rate of return on bonds).

Upon retirement, you're forced to buy an annuity such that your SS benefits plus the annuity purchased from your personal account at the minimum give you poverty line income. Unclear what happens if there isn't enough money to get you to the poverty line. The federal government would handle the annuities. The rest you can spend when you want.

If you retire and die the next day, as with any annuity the money reverts back to the issuer - in this case the feds. In other words, it isn't inheritable If the government underestimates life expectancy (the miracle cure appears), I imagine we'll hear talk about how those annuity contracts are "just IOUS" and the gov't can't afford to pay, blah blah blah.

They're claiming they'd only need to borrow $664 billion through 2015 ("the budget window") to handle the transition costs. No word on 2016 and beyond... I see Big Media Matt is on this point and our incompetent press. Expectation of course is that when 2015 or so rolls around, we get to scream "crisis!" again and cut future benefits further. Neat game.