In a February 4 editorial, The Wall Street Journal misleadingly claimed that President Bush's plan to allow workers to divert Social Security payroll taxes into private accounts would not result in benefit cuts. The editorial stated: "For the President's fellow Congressional Republicans ... addressing Social Security means explaining the matter to constituents who will hear from Democrats that their benefits will be cut. Never mind that this is false, many GOP incumbents would rather just pass one more highway bill." In fact, "Model 2" from Bush's 2001 Commission to Strengthen Social Security -- which is widely expected to form the basis of the plan Bush will propose -- prescribes benefit cuts for all Social Security beneficiaries, and the Bush White House has also officially advocated a reduction in traditional benefits for private account holders.
As Media Matters for America documented, "Model 2" calls for initial Social Security guaranteed benefit levels to be set according to the rate of inflation, instead of the rate of wage growth (as it is now), which would result in lower benefits than promised under current law. "Model 2" also prescribes an additional cut in benefits for those workers who opt to redirect a portion of their payroll taxes into a private account, and Bush has publicly stated his support for a plan to cut monthly benefits for private account holders, as the Washington Post reported on February 4. According to the proposed plan, workers who divert a portion of their payroll taxes into a private account will have their guaranteed Social Security benefits reduced by the amount the money would have earned had they paid it into the system -- dollar-for-dollar plus interest set at three percent above the rate of inflation. Upon retiring, the workers would receive the full amount of the private account (the principal, plus any interest accrued), and their reduced guaranteed benefit. However, if the money in the private account earned less than three percent above the rate of inflation, the workers would actually receive less money than they would have had all their payroll taxes remained within the system.