Monday, June 06, 2005

Social Security according to GF Will

In response to the George F. Will article that ran May 5th, I would like to present some numbers that Mr Will curiously misses. He implies that social security, when means tested, is similar to welfare, rather than a social safety net. He writes, "means-testing, however labled, is an attribute of welfare programs." It seems that an economist of his stature should be able to discuss the changes in social security as well as the changes in the federal tax code as they relate to his, "welfare programs."

For the purpose of discussion, assume a fixed salary of a 35 year old worker, who plans to retire at 70. The current social security plan offered by President Bush (sources: Center on Budget and Policy Priorities, and would cut all benefits of workers who earn over $36,507 per year. This, according to the president, would "protect: the poor.

Upon retiring, the average US worker earning $36,507, would have their beneftis reduced 14% to $1,425 per month. Of course they have received a tax cut, and if these cuts are permanent, the average worker would save $353 per year (source: Placing this "savings" into an investment, such as an idex fund that averages 8% return per year, will give the average worker an additional $65,694 to retire with. Assuming they save it all.

Any worker who earns $90,000 or above (the current maximum level of social security tax), would have their first year benefits cut 25% and recevie $1,982 per month. An individual at the $90,000 earnings level saves an average of $1,085 per year if the Bush tax cuts become permanent. Given the same investment plan, 8% return over 35 years, they gain an extra $201,921 for retirement.

If you are at the top 1% of earners in the US and earn over $518,000 per year you can stash away your average tax savings of $3582 per year, and have $666,618 at age 70, again assuming you save the entire tax cut and see an 8% return.

However, if you are among the top earners and pull in one million dollars or more per year, while receiving the same social security benefit as anyone below you on the wage scale above $90,000, you will save $35,785 per year if the tax cuts are permanent. Save this cash at an 8% return and at retirement you will see $6,659, 665.

Now, Mr Will, seriously, who is "means testing" who?

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