WASHINGTON—President Bush devoted lots of attention in his State of the Union address to his proposal for new personal investment accounts, which he said would help improve the future financial stability of Social Security.
The president was selling a fundamental change to Social Security involving many complex parts. Like any good salesman, he was putting the best face on his plan, and he didn't mention many other aspects of it that would result in greater federal debt and lower Social Security benefits for many Americans. Here is some of what the president didn't say:
_ Bush said that unless changes are made, Social Security is headed for bankruptcy. He didn't say that Social Security actuaries project that the system can pay full retirement benefits until 2042 without making any changes, and that after that, annual revenues will be sufficient to cover 73 percent of benefits. The nonpartisan Congressional Budget Office says the system will be able to pay full benefits until 2052 without any change.
_ Bush said he'd let younger workers pay for their new investment accounts by diverting part of the taxes they now pay on their wages into stocks and bonds that they'd own. He didn't say that every dollar that was diverted into the new personal accounts would be taken away from paying Social Security benefits for today's and tomorrow's retirees and would have to be made up by massive federal borrowing.
_ Bush said that fixing Social Security permanently would require a careful review of the options. He didn't say how he'd pay for the transition costs of moving from today's Social Security system to one that includes new personal-investment accounts, although White House aides said Wednesday that they planned to borrow about $750 billion for that. That would cover transition costs of phasing the system in from 2009 through 2015. Bush and his aides didn't say that Social Security's actuaries estimate that the price tag could be $2.2 trillion in the first decade and $4.5 trillion in the second decade of full operation. That would be added to the national debt. The plan would increase the debt annually for about 60 years.
_ Bush said his new personal accounts would permit their owners to build wealth. He didn't say that those accounts would do nothing to fix Social Security's projected funding gap between tax revenues and the cost of retirement benefits. White House aides said Wednesday that a worker's traditional Social Security benefits would be reduced proportionately to offset the cost of his new account, but Bush didn't mention reducing traditional benefits. The new accounts would be outside of Social Security's structure as we know it, and they wouldn't pay for traditional Social Security benefits promised under existing law.
_ Bush rules out raising taxes to fix Social Security's future finances. He didn't say that means the only way left to bring Social Security's future income and costs into balance is to reduce future benefits.
_ Bush said he'd work with Congress to bring fiscal balance to Social Security. He didn't mention that his aides are weighing whether to propose a big benefit cut for future retirees. The cut is called "price indexing." It would change the formula for raising future retirement benefits. Current benefits rise in line with an index that ties them to the rise in average annual wages. The shift would replace that index with one tied to the rise in annual prices. Because wages tend to rise faster than prices, this shift would result in a benefit reduction of 26 percent for average wage-earners who retire in 2042, and of 46 percent for average wage-earners who retire in 2075, according to Social Security actuaries.
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(c) 2005, Knight Ridder/Tribune Information Services.
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