Wednesday, July 27, 2005

Less than zero

I’d like to say something nice about the Democrats’ “AmeriSave” program for “retirement security.” Really, I would. At first glance, it seems like an unobjectionable idea to help businesses guide their employees into better savings habits. Education and automatic enrollment into 401(k)s – sure why not? But then Donald Luskin notes:
[I]t consists mostly of incentives for lower-earning Americans to save money they don't have, because Social Security has already sucked it out of their paycheck.
There’s the rub: AmeriSave’s effect on the Social Security problem can’t be measured with a micrometer. At best it will cushion the blow when Social Security goes belly-up in 2017 2041 and benefits are automatically cut 27% to match incoming revenues. In reality AmeriSave is a Potemkin village, designed less to solve the government’s unfunded liabilities than to provide cover to Democrats who don’t want to explain that real reform is required to keep Social Security solvent. That means a combination of tax increases, massive borrowing, or benefit cuts.

If the Democrats were really so concerned about the ability of Americans to save for retirement, they would lift the single-most regressive tax on their paychecks. Instead, they want to hand out pamphlets.

Update - My bad. Benefits do not run out in 2017. Instead, that's when the SS payments are outstripped by revenues and the Social Security administration needs to start to cash in treasury bonds. Those bonds are depleted in 2041 and then - by law - the government can only pay out benefits equal to the payroll tax revenues coming in. Copied from comments in a previous post of mine:

From the Washington Post:http://www.washingtonpost.com/wp-dyn/articles/A55797-2005Feb26.html

“The Social Security Administration estimates that by 2042, the system will have depleted trillions of dollars worth of Treasury bonds piling up in its trust fund. At that point, BY LAW, the system could pay out in benefits only what it would receive in Social Security taxes.

By then, the number of Social Security beneficiaries will have ballooned to 91.5 million people, from 47.9 million today, according to the Social Security Administration. For every beneficiary, there would be only two workers, who, under a 12.4 percent payroll tax, would generate nearly $960 billion less in taxes than are promised in benefits. At the moment of "trust fund exhaustion," benefits would have to be cut 27 percent from promised levels.”

2 comments:

DCPI said...

You should pay attention to the defined benefit plan provisions also... they would put the nail in the coffin for traditional pensions.

Anonymous said...

"Social Security goes belly-up in 2017 and benefits are automatically cut 27%"

Really? This is news...of your own manufacture. Time to change the aluminum foil in your hat.