Saturday, February 05, 2005

Social Security - Is this what's going on?

I've been playing around with some of the numbers concerning the Bush plan for Social Security and have found something interesting. I'm actually looking at an analysis of the Lindsey Grahm's plan, but this is very similar to what Bush is proposing.

Specifically, I'm looking at the claim that the Bush plan has a claw back provision, and the fact that some on the right are saying that is a misrepresentation. In a sense the right wingers are correct. However, that is because the so-called 'guaranteed benefit' under the plan is not, in fact, guaranteed. So if we consider there example of a Ms. Smith in the 1990 cohort, here listed benefit is $13,104. However, it would be more accurate to consider her benefit to be this figure minus the annuity she is required to purchase (costing $8,169). In this case here guaranteed benefit (the benefit she will receive in any circumstances) is then $4,935. Now the first observation is that this figure is extraordinarily low and should be trumpeted for this reason. There is no claw back it's just that your benefits are being cut to the bone.

It struck me that this figure is also ridiculously low if it is covered by the 8.4% of your Social Security taxes remaining. On the other hand, if we ignore the employer's contribution there remains 2.2% of your salary in Social Security taxes. I'm not certain what the exact figure is for salary being used in the analysis (I just really started this morning). I chose a salary of about $32,000 a year and got numbers close to the referenced analysis. Then I considered that 2.2% of that salary is going toward the guaranteed benefit and got a figure very close to the $4,935 mentioned above.

The upshot is that I seem to be finding that the figures in the Lindsey Grahm plan at least, work out sensibly, if we assume that the employer's contribution to Social Security is going to be eliminated. I think it would be very wise for Democrats to look into this possibility and be prepared for that argument to come out from the right.


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