SS 'calculators' from politicians, policy institutes vary

WASHINGTON -- Under President Bush's plan for Social Security, a 35-year-old woman earning $50,000 would see her benefits cut by $6,000 per year.

No, scratch that. Given a personal account, her annual take would jump by $63,000.

What?

A variety of do-it-yourself "calculators" purport to show the impact of Social Security changes on individual workers. But anyone who tries to use them might come away confused. Created by partisans in the Social Security debate, each of these online calculators begins with different assumptions, and that makes all the difference.

"You can get yourself into trouble if you're comparing apples to oranges," said Michael Tanner of the libertarian Cato Institute, a leading proponent of private accounts.

The calculation assumptions go to the heart of the debate over Social Security: How much will the stock market rise? How much will promised benefits be cut?

Democrats and their allies assume that promised benefits will be chopped by almost half and the stock market will produce relatively paltry returns.

Bush backers assume the stock market will do very well. They figure that personal accounts will be so large and so profitable that retirees will come out way ahead.

Bush says the system will go broke if changes aren't made. And he talks about creating private accounts -- allowing younger workers to divert up to two-thirds of their share of Social Security payroll taxes into accounts that could be invested in stocks or bonds.

But personal accounts do nothing to solve the program's long-term financial problems, as Bush advisers concede.

Most of the options for bringing the system into balance involve cutting benefits one way or another. The option that has received the most attention -- and one recommended by the president's 2001 Social Security commission -- involves changing the formula used to set initial benefits at retirement.

Democrats and their allies regularly suggest this change -- which would eventually reduce future government benefits by half -- will be part of the final plan.

Initial benefits are now based on the rate that wages rise over time. Under the commission's plan, benefits would be set based on the rate that prices rose during a person's working life. Because prices tend to grow more slowly than wages, benefits would wind up smaller.

A Social Security calculator recently launched by Senate Democrats incorporates this cut. It also assumes that someone's personal account will earn only 3 percent interest after inflation. At that rate, because of the way the accounts are structured, the investor would see no profit at all for his account.

Given these assumptions, it's not surprising people would come out worse under the Bush plan.

Someone born in 1970 who earned $50,000 this year and who expects her salary to grow over time would get about $27,000 per year upon retirement under the current system. But she would get less than $21,000 under the new plan.

The site declares: "How will you lose under Bush privatization plan," and calculates the annual cut at $6,480.

What the site doesn't say is that the cut is attributable entirely to efforts to make the overall system solvent and has nothing to do with any "privatization plan."

A similar calculator from the liberal Center for Economic and Policy Research is more complicated and detailed, but it makes similar assumptions and comes up with similar results.

Not the calculators created by conservatives.

The Heritage Foundation, Cato Institute and National Center for Policy Analysis all have online calculators that assume very large personal accounts -- much larger than the ones Bush is proposing. They all assume healthy returns -- from 4.6 to 5.4 percent after inflation.

The Heritage Foundation calculates that the 35-year-old woman now earning $50,000 would wind up with $89,160 a year at retirement from her personal account.

The conservatives' sites don't mention there is not much of a safety net if the stock market tanks. They also omit the trillions of dollars government would have to borrow to implement this plan.

David John, a Social Security expert at Heritage, noted that the calculator has been on the Internet for several years. But he added: "We have more hits these days."

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On the Net:

Senate Democrats: http://reid.senate.gov/ss/calc.html

Heritage Foundation: http://www.heritage.org/research/features/socialsecurity/