WASHINGTON — Under President Bush’s plan for Social Security, a 35-year-old woman earning $50,000 would see her benefits cut by $6,000 per year.
No, scratch that. Given a personal account, her annual take would jump by $63,000.
A variety of do-it-yourself “calculators” purport to show the impact of Social Security changes on individual workers. But anyone who tries to use them might come away confused. Created by partisans in the Social Security debate, each of these online calculators begins with different assumptions, and that makes all the difference.
“You can get yourself into trouble if you’re comparing apples to oranges,” said Michael Tanner of the libertarian Cato Institute, a leading proponent of private accounts.
The calculation assumptions go to the heart of the debate over Social Security: How much will the stock market rise? How much will promised benefits be cut?
Democrats and their allies assume that promised benefits will be chopped by almost half and the stock market will produce relatively paltry returns.
Bush backers assume the stock market will do very well. They figure that personal accounts will be so large and so profitable that retirees will come out way ahead.
Part of the trouble in calculating the impact of changes to the system is that Bush hasn’t produced a comprehensive plan, and no leading one has emerged in Congress either.
Bush says the system will go broke if changes aren’t made. And he talks about creating private accounts — allowing younger workers to divert up to two-thirds of their share of Social Security payroll taxes into accounts that could be invested in stocks or bonds.
But personal accounts do nothing to solve the program’s long-term financial problems, as Bush advisers concede. And the president has not said how he would make the system solvent, only that many ideas are on the table.
Advocates on both sides have taken it upon themselves to fill in the details.
Most of the options for bringing the system into balance involve cutting benefits one way or another. The option that has received the most attention — and one recommended by the president’s 2001 Social Security commission — involves changing the formula used to set initial benefits at retirement.
Democrats and their allies regularly suggest this change — which would eventually reduce future government benefits by half — will be part of the final plan.
Initial benefits are now based on the rate that wages rise over time. Under the commission’s plan, benefits would be set based on the rate that prices rose during a person’s working life. Because prices tend to grow more slowly than wages, benefits would wind up smaller.
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