http://www.latimes.com/news/nationworld/nation/la-na-econ15dec15,1,2882743.story Investments to Kick Off Social Security Discussion
Critics prepare to block Bush proposal to shift payroll taxes into private accounts.
By Warren Vieth and Joel Havemann
Times Staff Writers
December 15, 2004
WASHINGTON — <snip>Yet advisors and analysts say it is becoming increasingly clear that the starting point for discussions is the second of three restructuring options outlined in 2001 by an independent commission appointed by Bush. The commission's co-chairman, Time Warner Chief Executive Richard D. Parsons, is listed first among speakers on Thursday's Social Security panel.<snip>
"Under these changes, Social Security would be neither social nor provide security," he (Princeton economist Alan S. Blinder) said. "This would be a piece of a program to expose people to more and more risk…. There are millions of Americans who have no desire and no ability to gamble on the financial markets, and they shouldn't be pushed to."
Under the presidential commission's "Model 2," younger workers, perhaps those under 55, would be allowed — but not required — to divert up to $1,000 of their annual payroll taxes into private accounts. Their investment options would be limited to diversified mutual funds containing mainly stocks and bonds.
When they reached retirement age, they could convert their private accounts into annuities that would provide a guaranteed monthly payment until they died. Their conventional Social Security benefits would be cut to reflect the reduced payroll taxes they paid.
Beyond that, the conventional benefits received by all Social Security beneficiaries below the age cutoff — even those who didn't set up private accounts — would be calculated according to a new formula tied to price inflation rather than wage growth. Retirees would receive smaller checks than under current law.
Under Model 2, the stingier benefit formula for all participants would account for all the improvement in Social Security's finances. Private accounts would not help bridge the long-term funding gap. In fact, the government would have to borrow as much as $2 trillion over the next decade to pay benefits to current retirees because that much payroll tax revenue would be diverted into private accounts. <snip>