Thursday, March 10, 2005

President Bush in Louisville

I got to see President Bush speak about Social Security reform this afternoon. Here he is being introduced by Congresswoman Ann Northup.

I think that the President has so far done a nice job of creating awareness of the problem with Social Security, but has a bit of a gap to overcome in proposing a workable solution. For example, the slogan for this tour seems to be "Do the Math" (it's printed on all the yard signs and bumper stickers that were handed out at the event). I agree that doing the math is the first step, and looking at the numbers it's very clear that we have a big problem looming with Social Security. Here's the math: WD = RB. Since Social Security is pay-as-you-go, the number of workers times the amount deducted from their checks must equal the number of retirees times the amount of their benefits.

I haven't yet been able to connect the dots in my own mind to figure out how adding personal retirement accounts to Social Security will solve this problem. The basic problem is that by 2018, the amount of money being withheld from workers' paychecks will not be enough to pay all of the benefits owed to retirees. Here's my confusion - say this plan were available today, and I choose to participate, putting aside 3% of my SS withholding into a personal retirement account. This is a good thing for me, because I now own a portion of my Social Security. The money is invested in relatively secure funds and I get to watch it grow. If I die, my beneficiary gets all the money. Good for me.

Now fast-forward to the year 2018. I'm still working, and the Social Security deductions are still coming out of my paycheck. But since 3% of the deduction is going to my own retirement account, that's 3% less that is going into the fund to pay today's retirees (by the way, since almost all of the baby boomers have retired there are a whooole lot of retirees now - in fact, there are only two of us workers for every retiree).

See my problem? The equation doesn't fundamentally change just by adding private retirement accounts to the mix. Unless I'm missing something (which is entirely possible), the only way to change the math is to change the numbers involved. In order for the equation to remain balanced in 2018 and beyond, either the amount of money flowing in has to increase (higher taxes) or the amount flowing out has to decrease (lower benefits or fewer beneficiaries).

Somebody please correct me if I'm wrong, but in my mind we've still got quite a long way to go towards solving this problem.

1 comment:

cargo said...

I think the whole SS issue is just a distraction for the American populace while other, bigger shit goes down.

I just don't understand how Bush gets taken seriously on these issues. Billions is being spent on war, money you Americans need desperately in other areas. And he lied to you about the war, too... what makes you think he really cares about social security reform? Your kids are going to have a deficit so huge that SS will be the least of their concerns.

God forbid, but if your president picks too many more fights with nuclear powers, there isn't going to be any America left.