The Secrets of the Social Security Plan

Via MSNBC/Wash Post comes this very interesting analysis of the "real" Bush plan for Social Security reform. The most interesting element?

Under the proposal, workers could invest as much as 4 percent of their wages subject to Social Security taxation in a limited assortment of stock, bond and mixed-investment funds. But the government would keep and administer that money. Upon retirement, workers would then be given any money that exceeded inflation-adjusted gains over 3 percent.

That money would augment a guaranteed Social Security benefit that would be reduced by a still-undetermined amount from the currently promised benefit….

Under the system, the gains may be minimal. The Social Security Administration, in projecting benefits under a partially privatized system, assumes a 4.6 percent rate of return above inflation. The Congressional Budget Office, Capitol Hill's official scorekeeper, assumes 3.3 percent gains.

If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars, but the government would keep $78,700—or about 80 percent of the account. The remainder, $21,100, would be the worker's.

With a 4.6 percent average gain over inflation, the government keeps more than 70 percent. With the CBO's 3.3 percent rate, the worker is left with nothing but the guaranteed benefit.

There's a lot to quibble with here–the 4 percent annual return on investments lowballs returns (though it's true that many people, given choices, would elect for conservative investments). But this is an interesting clarification of a Bush plan that has yet to show specifics in the pre-legislative phase. And who knows what sort of Frankensteinian monster will actually rise up off the table if and when any legislation is actually passed.

Whole story here.