No. of Recommendations: 3
JAFO wrote:

As best as I can tell, it is not clear that GWB is proposing any of these three different reform models.
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I agree. There is a whole bunch of "assuming" going on by the pundits which, from what I'm reading, pretty much guess that "Door # 2" will be the winner (Mix of traditional benefits and private accounts).

I read an article in my local newspaper a few weeks ago (don't have a link) by Jonathan Clements that suggested those same pundits think that a person will be able to put 4% of payroll taxes (up to $1,000 a year) into a private account. Another of the reported assumptions is that private accounts will grow 2% faster then inflation. a final point is that the SSA would assume that individuals would purchase an inflation indexed immediate annuity from their private accounts when they are eligible to retire that would give them a lifetime steam of income and then the SSA would reduce their traditional benefit checks by that amount.

Like I said - a whole lot of assuming going on. The major problem is that this model solves nothing. On the contrary - it produces more problems because it does not generate additional revenue, but does generate more expenses which makes fewer dollars available to pay current retirees their entitlements. Even if private accounts produce gains exceeding the assumed 2% over inflation guess, which is great for the individual, it does nothing to reduce the SSA financial obligation to retirees.

Personally, I think that raising the $90,000 ceiling - to whatever level it takes - is the initial corrective action needed whether we go with privatization or not. From there - a modest raise in the tax rate and pushing the retirement age up a little are about all we've got in the way of continuing the system.

Regards,
Bill

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