Report Predicts Deep Benefit Cuts Under Bush Social Security Plan
The New York Times , The National Edition
Page A 22
June 19, 2002
By RICHARD W. STEVENSON
WASHINGTON, June 18 - Opponents of President Bush's plan to create personal
investment accounts within Social Security released a report today concluding that the
administration's approach would lead to deep cuts in retirement
benefits and still require trillions of dollars in additional financing to keep
the system solvent.
The report, by Peter A. Diamond, an economics professor at the Massachusetts Institute of Technology, and Peter R. Orszag, a
senior fellow at the Brookings Institution, is sure to provide material to Democrats for this fall's Congressional elections.
White House officials criticized the report as misleading or wrong. They said the report exaggerated the cuts in benefits by
comparing them with what is available under current law, rather than with what the system could afford to pay if no changes
were made to the system as the population ages in coming decades.
Without any changes, Social Security will start paying out more in benefits than it takes
in from payroll tax revenues and interest starting in 2027, leaving it increasingly dependent
on redeeming government bonds the system holds, according to the
system's trustees. By 2041, Social Security would exhaust its "trust fund" of bonds,
leaving it unable to pay full benefits.
The report concluded that under two of the commission's three proposals, monthly benefits
for each member of a two-earner couple retiring at 65 in 2075 would be well below
benefits promised under current law even after taking account of the returns
from a personal investment account. The report did not analyze the commission's
third proposal, which would not seek to
restore the system's long-term solvency.
Under one of the commission's proposals, the report said, total benefits would be 10 percent below current-law benefits for
low-income people, 21 percent below current-law benefits for middle-income people and 25 percent below current-law benefits
for upper income people.
Under the other proposal, the reductions in total benefits would range from 21 percent to 27 percent, and would be even larger
if adjusted for the risk of investing in the stock market, the report said. The benefit reductions would be smaller for people who
reach retirement age in the next three or four decades.
Charles P. Blahous, executive director of the president's commission, said the study "appears to have been deliberately
constructed to bias the discussion against proposals that include personal accounts."
Mr. Blahous cited calculations showing that in most cases retirees would receive larger benefits under the commission's
proposals than the current system can actually afford to pay, and that in some cases beneficiaries would do as well as or better
than the current system promises.
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