This is only a bit complicated.
If we do nothing to Social Security sometime in 35 to 45 years the system cannot pay all of it's obligations and will have to cut benefits 25 to 30%. This shortfall of cut benefits is equal to $3.7 trillion dollars occurring from 35 to 75 years from now.
One solution is to do nothing and just go with the reduced benefits. If we do this there is no longer a $3.7 trillion shortfall but benefits are cut from the future higher amounts paid to most people. Lets call this option A.
The Bush "solution" if it can even be loosely be called a solution:
Phase one - Default on the debt that lower income workers have already paid to subsidize tax cuts for the rich. What I mean here is that the Social Security tax is a straight income tax that only falls on lower income. Becuase we had this excess money coming into the federal government some Presidents and political parties felt free to cut taxes for the rich. Defaulting solves the GOP and Bush's problem of preserving the tax cuts for the rich but screws absolutely everyone else. This trust fund lock box is the excess taxes the Social Security has been collecting and investing in government bonds to pay off in the future when needed .Collecting excess money on lower incomes was the plan Reagan with bipartisan compromise created to secure Social Security for over forty years. Politicians then figured no one would be so dishonorable as to try to welch on the government bonds backed by the "full faith and credit" of the government. Gore tried to warn us about Bush.
Phase two - Cut Social Security benefits because they have stolen the Social Security trust fund lock box and can't meet the obligations. Phase one stole the Social Security trust funds and made Social Security a pay as you go system. As a pay as you go system Social Security needs cuts to keep in in balance. Retirees are going up faster than workers. So phase two eliminates the shortfall thirty five or more years out by making SS pay as you go now and in the future by instituting massive benefit cuts for people retiring. Bush says he will delay these cuts for ten years.
Phase three. Allow you to invest part of your Social Security money now and the government will borrow money to pay some benefits. Under phase one and two the money being paid in is supposed to pay off the new lower benefits so the government and now some of it goes away. This means they will have to borrow money to balance the money diverted to private accounts. They will borrow this money from the people investing in private accounts. Bush according to spokemen plans to do this by saying us lucky duckies can only keep the return above 3%. Lucky duckies can only get a return above 3% by investing in more risky stocks instead of bonds paying 3% so it really is government mandated gambling. If you win you keep what you make above 3% but you aren't even allowed to choose the stocks you are betting on. (You also lose inheritance rights to the money and any death benefits - some ownership society.) So it is mandatory gambling on whatever stock market basket the government picks. If the stock market does worse than 3% you lose again. If it does better you should be happy you lucky ducky.
After these phases go into effect what are the results?
More deficit sooner. The deficit of $3.7 trillion in years 35 to 75 goes away. A new deficit of $4.5 trillion or more in years 10 to 40 takes it place but should be repaid as those people retire.
Much lower benefits. A person born this decade with assumed average earning would have received $26,400 in the first year under existing Social Security rules. Under option A - doing nothing he - would have received $19,900. Under the Bush plan he would receive $13,100 according to the CBO, including the so-called extra money from his government mandatory gambling account.
This is the solution? Borrow $4.5 trillion sooner to avoid borrowing $3.7 trillion later while slashing benefits to the bone and solving the under 30% cut if you did nothing by replacing it with a 50% cut? Whoo - Hoo, Bozo the economist. .
Those other idiots voted for this Bozo, I sure didn't.
Links. Understanding The Bush Plan
White House whiners and the CBO figures.
Paying a trillion dollars to have your benefits cut more.
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