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.)

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