Bush's New Math
Attention, all campers! "Progressive indexing" is just another word for "cutting Social Security benefits." Do not be fooled by this idiot locution. Just as sure as "extraordinary rendition" now means "shipping the guy to another country so he can be tortured," progressive indexing means cutting benefits. Got it?
In another interesting development from President Bush's news conference, if you make more than $20,000 a year, you are wealthy. That's what the president said -- "wealthy."
Would you hire this man as an investment consultant? Bush said, "I know some Americans have reservations about investing in the stock market, so I propose that one investment option will consist entirely of treasury bonds, which are backed by the full faith and credit of the United States government." These are exactly the same treasury bonds that currently guarantee Social Security and have been described by Bush, including in the very same press conference, as a cabinet full of "worthless IOUs."
He continued, "Options like this will make voluntary personal retirement accounts a safer investment that will allow an American to build a nest egg that he or she can pass on to whomever he or she chooses." Nope, under that option, what you get is not a nest egg, but a rotten egg.
Brad DeLong, the blogging economics professor who specializes in this subject, ran the numbers. "The safest long-term investment the U.S. Treasury offers is the 20-year, inflation-protected TIP. ... What Bush is not telling you is that, under the Bush plan, if you divert $1,000 from your Social Security to private accounts, that amount is clawed back -- charged to an account associated with your normal Social Security benefit, that amount is then compounded at 3 percent per year plus the rate of inflation, and then after you retire, deducted over time from you normal Social Security benefit.
"If you are 45 and if Bush's plan were available today ... follow George W. Bush's advice, divert $1,000 into your private account, invest it in TIPS, and at the 1.85 percent per year interest rate you will indeed be able to collect an extra amount worth $10.11 a month in today's dollars when you retire at 65. ...
"But the clawback would reduce your normal Social Security benefit by $14.16 a month. You're $4.05 a month behind."
That's why privatizers never mention the clawback.
Basically, you have to beat 3 percent plus inflation to come out ahead, and the only way to do that is to gamble in the stock market.
Further technical analysis by Jason Furman shows how really badly the plan screws the middle class and that it would not close 70 percent of the shortfall problem, as Bush claimed, but 57 percent, including cuts for the disabled. Bottom line, it's a bad deal.
By the way, to the bird-brain on television who said it's only four percent of your Social Security and who wouldn't take some risks with a mere four percent? -- jeez. The four percent they are talking about is four percent of the 12 percent in total Social Security tax. Four is one-third of 12, and that comes to 33 percent. It's not that hard, honey.
Bush used another common disinformation claim out of Washington -- we are not cutting the benefits, we are merely slowing the rate of growth in the benefits. This is a perennial form of government lying.
"Of course we are not cutting Head Start. We are spending more money on Head Start than ever -- look, here's this figure in our budget, it is more than it was last year, and so that is an increase."
Except, since there are ever more kids who qualify for Head Start (and even at the lowest level, the program has never been fully funded), when the increase in funding is way too small to cover the increase in the number of most needy kids, what you have effectively done is decrease the spending per child in the program, and that is, in fact, cutting the program. It will not work as well. That this old dog still hunts is a shame on the arithmetic teachers of America.
Look, Social Security has a long-term financing problem that is not particularly dire and in fact not nearly as troubling as the Medicare shortfall. The Social Security shortfall can be solved by any one of a number of combinations of benefit cuts and tax increases. One thing you could do is let the Bush tax cuts expire at the end of 10 years, as they were originally supposed to do, or you could take the cap off Social Security taxes, which is now set at $90,000. That means at present any income you make over $90 K is not subject to Social Security taxes, one of the most flatly regressive features in the tax code. Removing the cap would solve the projected Social Security deficit, despite right-wing claims to the contrary.
And all I can say for Bush's energy plan is, if he thinks Americans want to give even more huge tax breaks to the oil companies when they are already making obscene profits, he's been talking to people on the wrong planet.