The Privatization Shell Game

THE PRIVATIZATION SHELL GAME….It looks like Social Security privatization is now at the top of President Bush’s agenda. We’ll soon be flooded with lots of doubletalk about how this is going to be funded and what it means, but in the meantime here is Privatization for Dummies ? a simple look at what it costs and who pays for it. Trust me on this: no matter how much they try to baffle and confuse us about their plan, this is approximately how it will work:

  • Currently, the total Social Security tax is 12.4% of income (up to a maximum income of $87,000).

  • The most popular proposal is one that allows workers to shift 2 percentage points of their current Social Security contributions into private accounts.

  • In other words, for each $100 of income, you (and your employer) currently pay $12.40 to the government to fund Social Security. Privatization allows you to deduct $2 of this and move it into a private account. That $2 represents about 16% of your original $12.40 contribution.

  • In 2003, total net contributions to Social Security amounted to $533 billion.

  • 16% of $533 billion is $85 billion. Thus, contributions to the government will fall by about $85 billion per year and be invested instead in private account.

These contributions, of course, are used to pay benefits to current Social Security recipients. No one is proposing that these benefits should be cut.

Bottom line: taxes go down by $85 billion, spending stays the same, and we add another $85 billion each year to the federal deficit. Wahoo! Who cares about deficits anyway?

UPDATE: Modified to make the math clearer, I hope. But it’s correct. Honest.