Atrios makes the expert catch here with this comment from Wapo associate managing editor Robert Kaiser …
Even more curiously, a “senior administration official” who briefed reporters on the Social Security proposal earlier today disclosed details of the White House plan that I don’t think will play well in Peoria. Most significantly, this official revealed that most or all of the earnings from new “personal” or privatized accounts will be paid not to the holder of the account, but to the government. The senior official called this a “benefit offset.” It’s one way to finance the creation of these private accounts, but it’s going to cause quite a political stir, I think.
That’s quite a deal, isn’t it?
If you really do well in the market you might even work your way back up to what you were going to get anyway. Of course, that not counting the huge benefit cuts.
Here is the exchange with the mysterious “senior administration official” in question …
Q Putting those aside, what is the revenue implication of a fully phased-in 4 percent account of the type that you’ve laid out?
SENIOR ADMINISTRATION OFFICIAL: It would be very different depending overall on whether or not it was done alone or in the context of a comprehensive plan.
Q Assuming it’s done alone, since that’s all you’re putting out here —
SENIOR ADMINISTRATION OFFICIAL: And the problem with assuming it’s done alone is that we aren’t advocating that it be done alone. We’re advocating that it be done in the context of a comprehensive plan.
Q But people are going to want to know what is the cost.
Q But you’re not saying what else is in there. You’re not saying what else is in the comprehensive plan, so —
SENIOR ADMINISTRATION OFFICIAL: Well, when we have — at the point where we can attach numbers to a comprehensive plan and model the effects of the accounts in that context, of course we’ll put those numbers forward. But until that — those specifications exist, we don’t have the ability to project that.
Q In saying that there is no net added cost to the program, are you implying — is it implicit that there is a benefit offset of one-third current guaranteed benefit because you’re diverting one-third of revenues away from this program? If that’s not correct, what would the benefit offset be to traditional benefits, and how would it be calculated?
SENIOR ADMINISTRATION OFFICIAL: The way that the election is put before the individual in a personal account structure of this type is that in return for the opportunity to get the benefits from the personal account, the person foregoes a certain amount of benefits from the traditional system.
Now, the way that election is structured, the person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual’s benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase as a consequence of making that decision.
Q So he would only get a benefit to the extent that his portfolio performed in excess of 3 percent?
SENIOR ADMINISTRATION OFFICIAL: Right. You can think of it as saying — if you were making a decision on where to put your money going forward over the next 10 years, and you’re saying, should I put it in this account or that account, if you’re choosing to put your money over here instead of over here, then the net effect on you, as an individual, is to compare what would be the rate of return you get from this system, as opposed to putting it over here. And that would be the difference between the two.
Q Short of 3 percent, would he make whole or would he get less than the current guaranteed benefit?
SENIOR ADMINISTRATION OFFICIAL: Well, there’s a implication at the end of your question which — you have to remember, the current system can’t pay the current guaranteed benefit, so —
Q — is to be paid through 2042 or 2052, the point — are you suggesting that would not be paid?
SENIOR ADMINISTRATION OFFICIAL: Well, it’s — well, actually, it’s — I don’t want to get off on too far of a tangent, but the Congressional Budget Office actually put out a paper this week which made a modification to what they had previously said about what current law was. And they made it very clear that current law is actually the level of benefits the current system can actually pay, as opposed to the level of benefits the current system is promising. So if you ask the question in terms of —
Q But they also said it can pay current level benefits until 2052 — correct?
SENIOR ADMINISTRATION OFFICIAL: But the Congressional Budget Office is also very careful to say that starting in 2019 or 2020, the resources are not there to pay those benefits.
Again saying the Trust Fund doesn’t <$NoAd$> exist. Like we’ve said, it’s all about trying to find a way out of paying the money back under the grand agreement of 1983.
