John Spratt: “This chart shows it as graphically as we can express it. There are two claws impinging on Social Security under the…”

“This chart shows it as graphically as we can express it. There are two claws impinging on Social Security under the President's proposal. First of all, most Americans do not understand this, but when you go to retire, if you have elected to put money into a private account, the first thing you will have to do before Social Security computes your benefits is pay Social Security back. That private account, that ownership account, is really a loan from the Social Security Administration. You have to pay back, upon retirement, every dollar you have diverted into a private account plus interest at 3 percent over the rate of inflation. That means that there will be a significant privatization tax which gets bigger and bigger over time, depending on how many years you are in the work force. In addition to that, there is another factor buried in all the detail which is critically important because it changes the nature of Social Security. And that is that basic benefit computation will be free formulated. Let me express that differently. Today, when you go to retire, the clerk at Social Security takes all your earnings from age 14 onward, takes the highest 35 years, averages those, brings them up to a present value, and then, each year, the amount of income that you can get is dependent upon a formula that is used to derive what is called the PIA, the primary insurance amount. You get 92 percent of the first $627.…”