Unexpectedly Intriguing!
08 April 2005

I don't think the Social Security reform opponents who sponsored a recent study by the Congressional Research Service (CRS) were quite prepared for its findings (see the Associated Press report Study: Accounts could cut guaranteed checks).

In a nutshell, the CRS found that if the President's Personal Retirement Account (PRA) option for Social Security were adopted, and included a dollar for dollar offset in guaranteed benefits from the traditional program from income generated by PRAs combined with an actuarial change in how Social Security retirement benefits are calculated (annually adjusting the basic retirement benefit by the amount of inflation in consumer prices rather than the inflation rate in wages), individuals born in 2006 with high lifetime earnings may expect to fully replace the amount that would otherwise have been provided by the traditional program at the time they retire.

Of course, it wasn't necessary to go to the trouble of wasting the American people's tax dollars for this study - readers of Political Calculations(TM) could have seen that trend here first in my detailed review of the Reid/Schumer Social Security calculator, which uses the same assumptions. (You can see the PRA option grow to replace traditional Social Security benefits under the Democrats' math in the "'Bush'" SS Benefits" and "'Bush' PRA Benefits" columns in the table of "Selected Results.")

Presidential spokesman, Trent Duffy, had this to say:

"If they commissioned a study that they now argue shows how personal accounts exceed Social Security, eureka! That's the point."

As it is currently defined (see this 45KB PDF document), the President's proposed Social Security reform plan would allow individuals to direct as much as 4.0% of their annual earned income into a PRA account. A minimum amount of 6.6% of their income would be directed to the portion of Social Security that provides traditional retirement and survivor's benefits. Individuals who decline to invest any of their taxed earnings into a PRA would have an amount equal to 10.6% of their income directed to the Social Security's traditional retirement benefit and survivor's insurance program.

Not included in the amounts listed above is the amount that would continue to be directed to the Disability Insurance program within Social Security, currently fixed at 1.8% of an individual's earned income. All together, the combined percentages add up to 12.4% of an individual's earned income, which is the total amount collected by the Social Security program through individual and employer-matched taxes. A brief overview of Social Security taxes is available for more details.

That only 4.0% of an individual's income regularly invested in a PRA over their entire working career is needed to fully replace the guaranteed amount that would otherwise have been provided by 10.6% of individual income contributed to Social Security under the conditions of the reform opponents' study is truly incredible.

But for truly amazing, you have to look at the unique interpretation of the study's findings being proclaimed by reform opponents. Here are Representative Charles Rangel's (D-NY) remarks:

President Bush says his plan is best for future generations, but this analysis shows how they would be the biggest losers. Our kids and grandkids born now might not have any guaranteed Social Security benefit.

That they would have something better is apparently lost upon Representative Rangel.

Update: Of course, rather than do another study, the opponents of reform could have simply looked at real-life results from a living laboratory. (HT: WILLisms.)

About Political Calculations

Welcome to the blogosphere's toolchest! Here, unlike other blogs dedicated to analyzing current events, we create easy-to-use, simple tools to do the math related to them so you can get in on the action too! If you would like to learn more about these tools, or if you would like to contribute ideas to develop for this blog, please e-mail us at:

ironman at politicalcalculations.com

Thanks in advance!

Recent Posts

Stock Charts and News

Most Popular Posts
Quick Index

Site Data

This site is primarily powered by:

This page is powered by Blogger. Isn't yours?

CSS Validation

Valid CSS!

RSS Site Feed

AddThis Feed Button


The tools on this site are built using JavaScript. If you would like to learn more, one of the best free resources on the web is available at W3Schools.com.

Other Cool Resources

Blog Roll

Market Links

Useful Election Data
Charities We Support
Shopping Guides
Recommended Reading
Recently Shopped

Seeking Alpha Certified

Legal Disclaimer

Materials on this website are published by Political Calculations to provide visitors with free information and insights regarding the incentives created by the laws and policies described. However, this website is not designed for the purpose of providing legal, medical or financial advice to individuals. Visitors should not rely upon information on this website as a substitute for personal legal, medical or financial advice. While we make every effort to provide accurate website information, laws can change and inaccuracies happen despite our best efforts. If you have an individual problem, you should seek advice from a licensed professional in your state, i.e., by a competent authority with specialized knowledge who can apply it to the particular circumstances of your case.