State of the Union wrapup

The reports are in, and the results are mostly good for the President. Obviously, the headlines are dominated by the Social Security proposal, and virutally every story notes the chorus of Democratic boos, drawing comparison to the House of Commons. The Post also carries a story on how moderate Republicans reacted to some of the more conservative measures. All major media agree- expect a nasty fight.

It would seem that few commentators have noted the frequent appeals to young Americans. That's too bad, because for all his talk about the troubles of partisan politics, his speech was a blatant play for young voters. It's no secret that a majority of young Americans support fiddling with Social Security, while older voters are more skeptical and those facing imminent retirement adamantly opposed. But since older voters only have so many elections in front of them, the future, it seems, is with the future.

Hence, the President wants to toy with Social Security sooner rather than later, or at least make the effort. Young voters would be well advised to get off this bandwagon- the proposal is nothing more than smoke and mirrors. The plan is not the 401(k) style nest egg builder that it sounds like. According to the Post, here's how it works.

• A worker elects to divert 4% of his FICA total wages into the personal account, up to $1,000 per year.
• The taxpayer may not choose how to invest the money- it must go into a conservative mixture of mostly government bonds.
• Upon retirement all the money that accrues in the account is his, but his Social Security benefit would also be reduced by the amount of the worker contributed into his account as opposed to traditional Social Security.

A "senior administration official" quoted in the Post explains, "The person comes out ahead if their personal account exceeds a 3 percent real rate of return, which is the rate of return that the trust fund bonds receive.... So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent real rate of return. To the extent that his personal account gets a higher rate of return, his net benefit would increase."

If the rate of return in the account mirrors the rate of return of the Social Security Trust Fund, then there is no gain and no loss. For what it's worth, the Congressional Budget Office projects a rate of return of 3.3%- a fraction higher than the Trust Fund's growth.

In the meantime, the federal government has control over your money, and since it has limited the investment to government bond funds it amounts to little more than a loan to the Feds at the interest rate they have chosen. One other thing- if the account does worse than the rate of return of Trust Fund, then the taxpayers loses that money.

It's a gamble with the system. True, something needs to be done to ensure Social Security's long term viability, but the President's plan is little more than a roulette table where you only allowed to bet on black or red. You'll never get rich that way, and green zero will still come up once in a while.